SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 29, 1998
HOST MARRIOTT CORPORATION
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 001-14625 53-0085950
- ---------------------------- ------------ ---------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
Number)
10400 Fernwood Road, Bethesda, Maryland 20817-1109
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
The Registrant's telephone number, including area code: (301) 380-9000
Exhibit index is located on page 6.
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5: Other Events
- ---------------------
On December 29, 1998, HMC Merger Corporation ("new Host Marriott") , a
Maryland corporation and formerly a wholly owned subsidiary of Host Marriott
Corporation, a Delaware corporation ("old Host Marriott"), completed its merger
with old Host Marriott as part of old Host Marriott's plan to convert to a real
estate investment trust. In connection with the merger, new Host Marriott, as
the surviving corporation in the merger, changed its name from HMC Merger
Corporation to Host Marriott Corporation, and commencing at the opening of
trading on December 30, 1998, shares of the new Host Marriott will be traded on
the New York Stock Exchange under the symbol "HMT," the same symbol under which
old Host Marriott was traded prior to the merger.
Certain factors that should be considered in deciding whether to
invest in securities of new Host Marriott Corporation are set forth under the
caption "Federal Income Tax Considerations" attached hereto as Exhibit 99.1 and
incorporated herein by reference.
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
(a) Financial Statements
Not applicable.
(b) Pro forma financial information
Host Marriott, L.P. ("Operating Partnership")
- --------------------------------------------
Introduction to Unaudited Pro Forma Financial Statements of the
Operating Partnership
100% Participation with No Notes Issued
---------------------------------------
Pro Forma Balance Sheet as of September 11, 1998
Pro Forma Statement of Operations for the First Three Quarters
1998
Pro Forma Statement of Operations for Fiscal Year 1997
100% Participation with Notes Issued
------------------------------------
Pro Forma Balance Sheet as of September 11, 1998
Pro Forma Statement of Operations for the First Three Quarters
1998
Pro Forma Statement of Operations for Fiscal Year 1997
-2-
Host Marriott Corporation ("Host REIT")
---------------------------------------
Introduction to Unaudited Pro Forma Financial Statements of Host REIT
100% Participation with No Notes Issued
---------------------------------------
Pro Forma Balance Sheet as of September 11, 1998
Pro Forma Statement of Operations for the First Three Quarters
1998
Pro Forma Statement of Operations for Fiscal Year 1997
100% Participation with Notes Issued
------------------------------------
Pro Forma Balance Sheet as of September 11, 1998
Pro Forma Statement of Operations for the First Three Quarters
1998
Pro Forma Statement of Operations for Fiscal Year 1997
Crestline Capital Corporation ("Crestline")
-------------------------------------------
Introduction to Unaudited Pro Forma Financial Statements of Crestline
Pro Forma Balance Sheet as of September 11, 1998
Pro Forma Statement of Operations for the First Three Quarters
1998
Pro Forma Statement of Operations for Fiscal Year 1997
(c) Exhibits
Exhibit No. Description
----------- -----------
99.1 "Federal Income Tax Considerations"
relating to an investment in
securities of new Host
Marriott Corporation.
-3-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 29, 1998 HOST MARRIOTT CORPORATION
By: /s/ Donald D. Olinger
--------------------------------
Name: Donald D. Olinger
Title: Senior Vice President
and Corporate Controller
-4-
PRO FORMA FINANCIAL INFORMATION
Page No.
--------
Host Marriott, L.P. ("Operating Partnership") ......................... 6
Introduction to Unaudited Pro Forma Financial
Statements of the Operating Partnership
100% Participation with No Notes Issued
Pro Forma Balance Sheet as of September 11, 1998 ............... 8
Pro Forma Statement of Operations for the First Three
Quarters 1998 ................................................ 12
Pro Forma Statement of Operations for Fiscal Year 1997 ......... 13
100% Participation with Notes Issued
Pro Forma Balance Sheet as of September 11, 1998 ............... 18
Pro Forma Statement of Operations for the First Three
Quarters 1998 ................................................ 22
Pro Forma Statement of Operations for Fiscal Year 1997 ......... 23
Host Marriott Corporation ("Host REIT")
Introduction to Unaudited Pro Forma Financial Statements
of Host REIT .................................................... 29
100% Participation with No Notes Issued
Pro Forma Balance Sheet as of September 11, 1998 ............... 30
Pro Forma Statement of Operations for the First Three
Quarters 1998 ................................................ 31
Pro Forma Statement of Operations for Fiscal Year 1997 ......... 32
100% Participation with Notes Issued
Pro Forma Balance Sheet as of September 11, 1998 ............... 34
Pro Forma Statement of Operations for the First Three
Quarters 1998 ................................................ 35
Pro Forma Statement of Operations for Fiscal Year 1997 ......... 36
Crestline Capital Corporation ("Crestline")
Introduction to Unaudited Pro Forma Financial Statements
of Crestline .................................................... 38
Pro Forma Balance Sheet as of September 11, 1998 ............... 40
Pro Forma Statement of Operations for the First Three
Quarters 1998 ................................................ 41
Pro Forma Statement of Operations for Fiscal Year 1997 ......... 42
-5-
PRO FORMA FINANCIAL INFORMATION OF THE OPERATING PARTNERSHIP
Given the structure of Host Marriott's Consent Solicitation, the Mergers and
the REIT Conversion may take a variety of different forms. The variations are
dependent in part on the number and identity of the Partnerships that merge
and whether limited partners elect to tender their Partnership Interests for
OP Units or Notes in connection with the REIT Conversion.
In light of the number of possible variations, the Company is not able to
describe all possible combinations of Hotel Partnerships that could compose
the Operating Partnership. All Hotel Partnerships have voted to approve the
Mergers but the Mergers have not yet been completed. To assist shareholders in
analyzing the Mergers and the REIT Conversion, the Company has prepared two
separate sets of unaudited pro forma financial statements to show the impact
of the Mergers and the REIT Conversion assuming the following two scenarios:
. All Partnerships participate and no Notes are issued ("100%
Participation with No Notes Issued")
. All Partnerships participate with Notes issued with respect to 100% of
the OP Units allocable to each Partnership ("100% Participation with
Notes Issued")
There is no minimum condition to participation in the Mergers and the
Operating Partnership does not believe that the presentation of additional
scenarios is relevant to investors or required. Furthermore, the unaudited pro
forma financial statements do not purport to represent what the results of
operations or cash flows would actually have been if the Mergers and the REIT
Conversion had in fact occurred on such date or at the beginning of such
period or to project the results of operations for any future date or period.
Host intends to use its best efforts to cause the REIT Conversion to be
completed as soon as possible and expects that it will be completed during
1998 in time for Host REIT to elect REIT status effective January 1, 1999.
The unaudited pro forma financial statements are based upon available
information and upon certain assumptions, as set forth in the notes to the
unaudited pro forma financial statements, that the Operating Partnership
believes are reasonable under the circumstances. Rental revenue is recognized
only for Leases to be entered at or prior to completion of the REIT
Conversion.
The unaudited pro forma statements of operations of the Operating
Partnership reflect the following transactions for the First Three Quarters
1998 and the fiscal year ended January 2, 1998 as if such transactions had
been completed at the beginning of the fiscal year:
Acquisitions, Dispositions and Other Activities
. Blackstone Acquisition
. 1998 Senior Note Refinancing
. 1998 Series C Senior Note Offering and the refinancing of certain debt
. 1998 acquisition of, or purchase of controlling interests in, eleven
full-service properties
6
. 1998 purchase of minority interests in two full-service hotels
. 1998 disposition of two full-service properties
. 1997 acquisition of, or purchase of controlling interests in, 18 full-
service properties
. 1997 refinancing or repayment of mortgage debt for three full-service
properties
REIT Conversion Activities
. 1998 deconsolidation of the assets and liabilities contributed to the
Non-Controlled Subsidiary, including the sale of certain furniture and
equipment to the Non-Controlled Subsidiary
. 1998 Mergers
. 1998 acquisition of minority interests in four private Partnerships in
exchange for OP Units
. 1998 lease of certain hotel properties to Crestline and conversion of
revenues and certain operating expenses to rental income
. 1998 adjustment to remove deferred taxes resulting from the change in
tax status related to the REIT Conversion
. 1998 Special Dividend of either .087 shares of REIT stock or $1.00 in
cash per share of common stock, at the election of each stockholder
(assumes only cash is elected)
. 1998 sale of an investment in a joint venture to Crestline
The adjustments to the unaudited pro forma balance sheet as of September 11,
1998 reflect all of the above 1998 transactions except for the acquisition of,
or purchase of controlling interests in, 11 full-service properties, the 1998
Senior Note Refinancing, the contribution of notes receivable to Crestline and
the disposition of two full-service properties, each of which occurred prior
to September 11, 1998 and were already reflected in the historical balance
sheet. The adjustments to the unaudited pro forma balance sheet as of
September 11, 1998 also reflects (a) the distribution of the Initial E&P
Distribution (which includes the Crestline common stock and the special cash
or stock election dividend) to Host stockholders and the Blackstone entities,
which was approved by the Board of Directors of Host on December 18, 1998 at
which time it determined that the conditions to the REIT Merger have been or
are reasonably likely to be satisfied or waived (and, in particular, that the
transactions constituting the REIT Conversion which impact Host REIT's status
as a REIT for federal income tax purposes have occurred or are reasonably
likely to occur), and (b) the Leases.
The assumptions regarding the number of OP Units to be issued and the price
per OP Unit are outside the control of Host Marriott and have been made for
illustrative purposes only. The unaudited pro forma financial statements and
accompanying notes should be read in conjunction with the historical
consolidated financial statements of the Host Marriott and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the Proxy Statement of Host Marriott and the Prospectus of HMC
Merger Corporation.
The Emerging Issues Task Force (EITF) reached a consensus in May 1998 on
Issue 98-9, "Accounting for Contingent Rents in Interim Financial Periods"
("EITF 98-9"). EITF 98-9 requires a lessor to defer recognition of contingent
rental income in interim periods until the specified target that triggers the
contingent rental income is achieved. The accompanying pro forma financial
statements reflect the application of EITF 98-9 to the interim periods. EITF
98-9 will have no impact on the full-year rental income recorded by the
Operating Partnership. While the EITF subsequently rescinded this consensus,
for purposes of these pro forma statements the Operating Partnership continues
to follow the accounting principles outlined in EITF 98-9. The Operating
Partnership may choose to record the contingent rental income in interim
periods and disclose in the footnotes to the financial statements the portion
that is contingent. However, the Operating Partnership has not concluded which
method it will use at this time.
7
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 11, 1998
100% PARTICIPATION WITH NO NOTES ISSUED
(IN MILLIONS, EXCEPT OP UNITS AMOUNTS)
ACQUISITIONS DISPOSITIONS
AND OTHER ACTIVITIES
---------------------------
A B C
DEBT
HOST DISTRI- HOST BLACK- ISSUANCE,
MARRIOTT BUTION MARRIOTT STONE REPAYMENT
CORPORATION ADJUST- HOTELS ACQUI- ACQUIS- &
HISTORICAL MENTS HISTORICAL SITION ITIONS REFINANCING
----------- ------- ---------- ------ ------- -----------
ASSETS
Property and equipment,
net.................... $5,937 $(649) $5,288 $1,449 $-- $--
Notes and other
receivables, net....... 32 (3) 29 66 -- --
Due from managers....... 88 (5) 83 5 -- --
Investments in
affiliates............. 18 -- 18 -- -- --
Other assets............ 319 2 321 -- -- 10
Receivable from Lessee
for working capital.... -- -- -- -- -- --
Cash, cash equivalents
and short-term
marketable
securities............. 575 (27) 548 (226) -- 488
(423)
------ ----- ------ ------ ---- ----
$6,969 $(682) $6,287 $1,294 $-- $ 75
====== ===== ====== ====== ==== ====
LIABILITIES AND EQUITY
Debt(J)................. $4,224 $(213) $4,011 $ 638 $-- $498
(423)
Convertible debt
obligation to Host
Marriott Corporation... -- 567 567 -- -- --
Accounts payable and
accrued expenses....... 70 (23) 47 -- -- --
Deferred income taxes... 526 (62) 464 -- -- --
Other liabilities....... 447 (10) 437 -- --
------ ----- ------ ------ ---- ----
Total liabilities....... 5,267 259 5,526 638 -- 75
Convertible Preferred
Securities............. 550 (550) -- -- -- --
Limited Partner
interests of third
parties at redemption
value (on a pro forma
basis 75.1 million OP
Units
outstanding)(K)........ -- -- -- 656 -- --
Equity
General Partner (on a
pro forma basis .2
million OP Units
outstanding)(K)
Limited Partner
interests of Host REIT
(on a pro forma basis
204.3 million OP Units
outstanding)(K)........ 1,152 (391) 761 -- -- --
------ ----- ------ ------ ---- ----
$6,969 $(682) $6,287 $1,294 $-- $ 75
====== ===== ====== ====== ==== ====
Book value per OP Unit
MERGERS AND REIT CONVERSION ACTIVITIES
------------------------------------------------------------------
D E F G L H I
EARNINGS DEFERRED
NON- PRIVATE & PROFITS CONTRI- LEASE TAX
CONTROLLED PARTNER- DISTRIBU- BUTION TO CONVER- ADJUST- PRO
SUBSIDIARIES MERGERS SHIPS TION(1) CRESTLINE SION MENT FORMA
------------ ------- -------- --------- --------- ------- -------- ------
ASSETS
Property and equipment,
net.................... $(212) $572 $ 61 $ -- $-- $-- $ -- $7,158
Notes and other
receivables, net....... 109 (3) -- -- -- -- -- 201
Due from managers....... (1) 12 -- -- -- (85) -- 14
Investments in
affiliates............. 14 -- -- -- -- -- -- 32
Other assets............ 3 23 (11) -- -- -- -- 346
Receivable from Lessee
for working capital.... -- -- -- -- -- 85 -- 85
Cash, cash equivalents
and short-term
marketable
securities............. (9) 7 (11) (247) (15) -- -- 119
7
------------ ------- -------- --------- --------- ------- -------- ------
$ (96) $611 $ 39 $(247) $(8) $-- $ -- $7,955
============ ======= ======== ========= ========= ======= ======== ======
LIABILITIES AND EQUITY
Debt(J)................. $ (68) $323 $-- $ -- $-- $ -- $ -- $4,979
Convertible debt
obligation to Host
Marriott Corporation... -- -- -- -- -- -- -- 567
Accounts payable and
accrued expenses....... 4 9 -- -- -- -- -- 60
Deferred income taxes... 6 -- -- -- -- -- (195) 275
Other liabilities....... (38) (21) (6) -- -- 320 -- 692
------------ ------- -------- --------- --------- ------- -------- ------
Total liabilities....... (96) 311 (6) -- -- 320 (195) 6,573
Convertible Preferred
Securities............. -- -- -- -- -- -- -- --
Limited Partner
interests of third
parties at redemption
value (on a pro forma
basis 75.1 million OP
Units
outstanding)(K)........ -- 300 45 -- -- -- -- 1,001
Equity
General Partner (on a
pro forma basis .2
million OP Units
outstanding)(K)
Limited Partner
interests of Host REIT
(on a pro forma basis
204.3 million OP Units
outstanding)(K)........ -- -- -- (247) (8) (320) 195 381
------------ ------- -------- --------- --------- ------- -------- ------
$ (96) $611 $ 39 $(247) $ (8) $-- $ -- $7,955
============ ======= ======== ========= ========= ======= ======== ======
Book value per OP Unit $ 4.95
======
See Notes to the Unaudited Pro Forma Balance Sheet.
8
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
100% PARTICIPATION WITH NO NOTES ISSUED
A. Represents the adjustment to record the spin-off of Crestline and:
. Reduce property and equipment by $649 million
. Reduce receivables by $3 million related to certain Crestline notes held
by the Operating Partnership
. Reduce due from managers by $5 million
. Increase other assets by $2 million
. Reduce cash, cash equivalents and short-term marketable securities by
$27 million
. Reduce debt by $213 million
. Reduce accounts payable and accrued expenses by $23 million
. Reduce deferred income taxes by $62 million
. Reduce other liabilities by $10 million
. Reduce equity by $391 million
. Eliminate the $550 million Convertible Preferred Securities of Host
Marriott which remain an obligation of Host REIT
. Record the $567 million of Convertible Debt Obligation to Host Marriott
which is eliminated in consolidation on the historical financial
statements of Host Marriott Corporation
B. Represents the adjustment to record the Blackstone Acquisition of 12
full-service properties (5,520 rooms) and a mortgage note secured by a
thirteenth full-service property including the issuance of 47.5 million OP
Units as determined through negotiations between the Operating Partnership and
Blackstone:
. Record property and equipment of $1,449 million
. Record mortgage note receivable of $66 million
. Record increase in due from managers of $5 million
. Record the use of cash of $226 million
. Record the assumption of mortgage debt of $638 million
. Record the issuance of 47.5 million OP Units (including OP Units
estimated to be issued in April 1999) at an estimated price of $12.50
per OP Unit, plus $1.00 per unit for 41.5 million OP Units for the
Special Dividend, plus the issuance of 1.4 million shares of Crestline
at an estimated share price of $15.10 with a total estimated fair value
of $656 million.
The purchase price of the Blackstone properties and mortgage note was
determined based on the estimated fair value of the 47.5 million OP Units and
the 1.4 million shares of Crestline expected to be issued. The number of units
to be issued will not increase or decrease depending on the stock price of
Host Marriott at the time of closing of the acquisition, but the actual number
of units to be issued will depend upon certain prorations and closing
adjustments and on the deemed value of the Initial E&P Distribution which the
Blackstone Entities are not entitled to receive (which will be determined 91
days after closing).
C. Represents the adjustment to record the Series C Senior Note Offering:
. Record the issuance of $500 million of notes, net of the discount of
approximately $2 million at issuance, and the repayment of approximately
$423 million of debt
. Record the deferred financing fees of $10 million
The remaining proceeds will be utilized to pay the approximate $75 million in
REIT conversion expenses
D. Represents the adjustment to record the investment in the Non-Controlled
Subsidiaries and to reflect the sale of certain hotel furniture and equipment
to the Non-Controlled Subsidiaries:
. Record decrease in property and equipment of $(212) million, including
$75 million of hotel furniture and equipment sold to the Non-Controlled
Subsidiaries
. Record receivable from Non-Controlled Subsidiaries for the furniture and
equipment loan of $75 million, and transfer of other notes totaling $34
million
9
. Record decrease in due from managers of $1 million
. Record investment in the Non-Controlled Subsidiaries of $14 million
. Record increase in other assets of $3 million
. Record decrease in cash of $9 million
. Record decrease in debt of $68 million of debt transferred to the Non-
Controlled Subsidiaries
. Record increase in accounts payable and accrued expenses of $4 million
. Record increase in deferred taxes of $6 million
. Record decrease in other liabilities of $38 million
E. Represents the adjustment to record the Mergers:
. Record property and equipment of $572 million
. Record decrease in notes receivable of $3 million
. Record increase in due from managers of $12 million
. Record other assets of $23 million
. Record cash of $7 million
. Record debt of $323 million
. Record accounts payable and accrued expenses of $9 million
. Record decrease in other liabilities of $21 million
. Record the issuance of 24.0 million OP Units totaling approximately $300
million
The purchase price and number of OP Units expected to be issued to the
limited partners of each Partnership is (in millions, except OP Units in
thousands):
INCREASE TO
PURCHASE NUMBER OF PROPERTY
PRICE OP UNITS AND EQUIPMENT
-------- --------- -------------
Atlanta Marquis............................. $ 24 1,921 $ 24
Desert Springs.............................. 37 2,943 36
Hanover..................................... 5 434 5
MHP......................................... 85 6,817 66
MHP II...................................... 84 6,674 78
Chicago Suites.............................. 11 891 38
MDAH........................................ 45 3,595 162
PHLP........................................ 9 725 163
---- ------ ----
$300 24,000 $572
==== ====== ====
The number of OP Units was determined based on the purchase price and an
estimated price of an OP Unit of $12.50 which is based upon the recent trading
range of Host Marriott Corporation's stock as adjusted for the dividend of
Crestline and the Special Dividend to its shareholders. The purchase price was
determined based on the fair market value of the net assets to be acquired.
The purchase price for minority interests (Atlanta Marquis, Desert Springs,
Hanover, MHP and MHP2) was allocated to property to the extent that the
purchase price exceeded the minority interest liability recorded. The purchase
price for the other three partnerships that are presently not consolidated was
allocated in accordance with APB Opinion No. 16 with the debt of each
partnership recorded at estimated fair value, all assets and liabilities,
except for property being recorded at historical carrying values of each
partnership with the residual allocated to property. The amounts allocated to
property are in all cases less than estimated current replacement cost.
F. Represents the adjustment to record the purchase of the remaining
minority interests in four Private Partnerships:
. Record property and equipment of $61 million
. Record decrease in other assets of $11 million
. Record use of cash of $11 million
. Record decrease in minority interest liabilities of $6 million
. Record the issuance of 3.6 million OP Units totaling approximately $45
million
10
G. Represents the estimated $247 million cash payment of the Special
Dividend to shareholders of Host Marriott and the Blackstone Entities as
partial consideration for the Blackstone Acquisition, which when combined with
the value of the Crestline common stock to be distributed to shareholders of
Host (estimated to be approximately $1.53 per share for a total Initial E&P
Distribution of approximately $2.53 per share) will represent the Initial E&P
Distribution. The aggregate value of the Crestline common stock and the
Special Dividend to be distributed to Host stockholders (and the Blackstone
Entities) in connection with the Initial E&P Distribution and the Blackstone
Acquisition is currently estimated to be approximately $582 million, of which
approximately $247 million is expected to be represented by the Special
Dividend.(/1/)
H. Represents the adjustment to record the transfer of working capital to
Crestline related to the leasing of the Operating Partnership's hotels by
decreasing working capital and recording a receivable from the lessee of $85
million and the adjustment to record deferred revenue of $320 million in
connection with the application of EITF 98-9 to the Operating Partnership's
rental income.
I. Represents the adjustment to record the effect on deferred taxes for the
change in tax status resulting from the REIT Conversion by decreasing deferred
taxes and increasing equity by $195 million.
J. The Operating Partnership's pro forma aggregate debt maturities at
September 11, 1998, excluding $8 million of capital lease obligations and the
$8 million debt discount recorded in conjunction with the Senior Notes
Refinancing, are (in millions):
1998.................................................................. $ 236
1999.................................................................. 130
2000.................................................................. 133
2001.................................................................. 98
2002.................................................................. 148
Thereafter............................................................ 4,801
------
$5,546
======
K. The estimated number of OP Units includes the following (in millions):
Limited Partner interests of Host REIT................................. 204.3
General Partner interests of Host REIT................................. 0.2
Limited Partner interests of Partnerships.............................. 24.0
Limited Partner interests of Private Partnerships...................... 3.6
Limited Partner interests of Blackstone Group.......................... 47.5
-----
Total OP Units....................................................... 279.6
=====
L. Represents the adjustment to record the contribution of $15 million in
cash to Crestline as a reduction in equity and to record the sale of an
investment of approximately $7 million in a joint venture which holds a
mortgage note of approximately $130 million from a consolidated subsidiary of
Host.
- --------
(1) The amount of earnings and profit distribution shown reflects only the
estimated distribution to be made in connection with the REIT Conversion.
The actual amount of the distribution will be based in part upon the
estimated amount of Host's accumulated earnings and profits for tax
purposes. To the extent that the distributions made in connection with
the Initial E&P Distribution are not sufficient to eliminate Host's
estimated accumulated earnings and profits, Host REIT will make one or
more additional taxable distributions to its shareholders (in the form of
cash or securities) prior to the last day of its first full taxable year
as a REIT (currently expected to be December 31, 1999) in an amount
intended to be sufficient to eliminate such earnings and profits, and the
Operating Partnership will make corresponding distributions to all
holders of OP Units (including Host REIT) in an amount sufficient to
permit Host REIT to make such additional distributions.
11
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FIRST THREE QUARTERS 1998
100% PARTICIPATION WITH NO NOTES ISSUED
(IN MILLIONS, EXCEPT PER OP UNIT AMOUNTS AND RATIOS)
ACQUISITIONS, DISPOSITIONS AND OTHER ACTIVITIES
------------------------------------------------------------
A B C E G
HOST HOST DEBT
MARRIOTT MARRIOTT 1998 ISSUANCE,
CORPORATION DISTRIBUTION HOTELS BLACKSTONE ACQUISI- REPAYMENT &
HISTORICAL ADJUSTMENT HISTORICAL ACQUISITION TIONS DISPOSITIONS REFINANCING
----------- ------------ ---------- ------------ ----------- ------------- ------------
REVENUE
Rental
revenues....... $ -- $-- $ -- $ -- $ -- $ -- $ --
Hotel revenues.. 922 -- 922 122 43 (6) --
Equity in
earnings
(losses) of
affiliates..... 1 -- 1 -- -- -- --
Other revenues.. 117 (58) 59 -- -- (50) --
----- ---- ----- ----------- ----------- ----------- -----------
Total revenues.. 1,040 (58) 982 122 43 (56) --
----- ---- ----- ----------- ----------- ----------- -----------
OPERATING COSTS
AND EXPENSES
Hotels.......... 502 -- 502 70 23 (3) --
Other........... 45 (30) 15 -- -- -- --
----- ---- ----- ----------- ----------- ----------- -----------
Total operating
costs and
expenses....... 547 (30) 517 70 23 (3) --
----- ---- ----- ----------- ----------- ----------- -----------
OPERATING
PROFIT......... 493 (28) 465 52 20 (53) --
Minority
interest....... (36) -- (36) -- (1) 1 --
Corporate
expenses....... (33) 3 (30) -- -- -- --
REIT Conversion
expenses....... (14) -- (14) -- -- -- --
Interest
expense........ (245) (8) (253) (35) (1) 1 (27)
Dividends on
Convertible
Preferred
Securities..... (26) 26 -- -- -- -- --
Interest
income......... 36 2 38 (6) (16) (1) --
----- ---- ----- ----------- ----------- ----------- -----------
Income (loss)
before income
taxes.......... 175 (5) 170 11 2 (52) (27)
Benefit
(provision) for
income taxes... (75) 3 (72) (4) (1) 21 11
----- ---- ----- ----------- ----------- ----------- -----------
Income (loss)
before
extraordinary
items.......... $ 100 $ (2) $ 98 $ 7 $ 1 $ (31) $ (16)
===== ==== ===== =========== =========== =========== ===========
Basic loss per
OP Unit........
Ratio of
earnings to
fixed charges.. 1.7x 1.8x
===== =====
Deficiency of
earnings to
fixed charges
MERGERS AND REIT CONVERSION ACTIVITIES
------------------------------------------------------------------------------
H J K L P/N I/M O
NON- EARNINGS OTHER LEASE INCOME
CONTROLLED PRIVATE & PROFITS REIT CONVER- TAX PRO
SUBSIDIARY MERGERS PARTNERSHIPS DISTRIBUTION(1) ACTIVITIES SION ADJUSTMENT FORMA
---------- ------- ------------ --------------- ---------- -------- ---------- ------
REVENUE
Rental
revenues....... $ -- $ -- $ -- $ -- $ -- $ 563 $ -- $ 563
Hotel revenues.. (14) 56 -- -- -- (1,123) -- --
Equity in
earnings
(losses) of
affiliates..... (3) -- -- -- -- -- -- (2)
Other revenues.. (5) -- -- -- -- -- -- 4
---------- ------- ------------ --------------- ---------- -------- ---------- ------
Total revenues.. (22) 56 -- -- -- (560) -- 565
---------- ------- ------------ --------------- ---------- -------- ---------- ------
OPERATING COSTS
AND EXPENSES
Hotels.......... (12) 37 2 -- -- (207) -- 412
Other........... -- -- -- -- -- -- -- 15
---------- ------- ------------ --------------- ---------- -------- ---------- ------
Total operating
costs and
expenses....... (12) 37 2 -- -- (207) -- 427
---------- ------- ------------ --------------- ---------- -------- ---------- ------
OPERATING
PROFIT......... (10) 19 (2) -- -- (353) -- 138
Minority
interest....... 3 18 1 -- -- -- -- (14)
Corporate
expenses....... -- -- -- -- -- -- -- (30)
REIT Conversion
expenses....... -- -- -- -- 14 -- -- --
Interest
expense........ 3 (21) -- -- -- -- -- (333)
Dividends on
Convertible
Preferred
Securities..... -- -- -- -- -- -- -- --
Interest
income......... 2 1 -- (5) (2) 7 -- 18
---------- ------- ------------ --------------- ---------- -------- ---------- ------
Income (loss)
before income
taxes.......... (2) 17 (1) (5) 12 (346) -- (221)
Benefit
(provision) for
income taxes... 1 (7) -- 2 (5) 138 (73) 11
---------- ------- ------------ --------------- ---------- -------- ---------- ------
Income (loss)
before
extraordinary
items.......... $ (1) $ 10 $ (1) $ (3) $ 7 $ (208) $ (73) $(210)
========== ======= ============ =============== ========== ======== ========== ======
Basic loss per
OP Unit........ $(.75)
======
Ratio of
earnings to
fixed charges.. N/A
======
Deficiency of
earnings to
fixed charges $(203)
======
See Notes to the Unaudited Pro Forma Statements of Operations.
12
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FISCAL YEAR 1997
100% PARTICIPATION WITH NO NOTES ISSUED
(IN MILLIONS, EXCEPT PER OP UNIT AMOUNTS AND RATIOS)
ACQUISITIONS, DISPOSITIONS AND OTHER ACTIVITIES
--------------------------------------------------
A B C D E
HOST HOST
MARRIOTT DISTRIBUTION MARRIOTT
CORPORATION ADJUST- HOTELS BLACKSTONE 1998 1997
HISTORICAL MENT HISTORICAL ACQUISITION ACQUISITIONS ACQUISITIONS DISPOSITIONS
----------- ------------ ---------- ----------- ------------ ------------ ------------
REVENUE
Rental
revenues....... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Hotel revenues.. 1,093 -- 1,093 148 112 89 (23)
Equity in
earnings of
affiliates..... 5 -- 5 -- -- -- --
Other revenues.. 49 (37) 12 -- -- --
------ ----- ------ ----- ----- ----- -----
Total revenues.. 1,147 (37) 1,110 148 112 89 (23)
------ ----- ------ ----- ----- ----- -----
OPERATING COSTS
AND EXPENSES
Hotels.......... 649 -- 649 101 62 42 (10)
Other........... 49 (20) 29 -- -- -- --
------ ----- ------ ----- ----- ----- -----
Total operating
costs and
expenses....... 698 (20) 678 101 62 42 (10)
------ ----- ------ ----- ----- ----- -----
OPERATING
PROFIT......... 449 (17) 432 47 50 47 (13)
Minority
interest....... (32) -- (32) -- (4) 5 (1)
Corporate
expenses....... (47) 2 (45) -- -- -- --
Interest
expense........ (302) (23) (325) (51) (12) (12) 3
Dividends on
Convertible
Preferred
Securities..... (37) 37 -- -- -- -- --
Interest
income......... 52 -- 52 (7) (14) (14) --
------ ----- ------ ----- ----- ----- -----
Income (loss) before
income taxes... 83 (1) 82 (11) 20 26 (11)
Benefit
(provision) for
income taxes... (36) 1 (35) 4 (8) (10) 4
------ ----- ------ ----- ----- ----- -----
Income (loss)
before
extraordinary
items ......... $ 47 $ -- $ 47 $ (7) $ 12 $ 16 $ (7)
====== ===== ====== ===== ===== ===== =====
Basic loss per
OP Unit.........
Ratio of
earnings to
fixed charges... 1.3x 1.3x
====== ======
MERGERS AND REIT CONVERSION ACTIVITIES
----------------------------------------------------------------------------------
F/G H J K L I/M O Q
DEBT EARNINGS
ISSUANCE, NON- PRIVATE & PROFITS LEASE INCOME
REPAYMENT CONTROLLED PARTNER- DISTRI- OTHER REIT CONVER- TAX PRO
& REFINANCING SUBSIDIARY MERGERS SHIPS BUTION(1) ACTIVITIES SION ADJUSTMENT FORMA
------------- ---------- ------- -------- --------- ---------- -------- ---------- -------
REVENUE
Rental
revenues....... $ -- $ -- $ -- $ -- $ -- $ -- $ 1,156 $ -- $1,156
Hotel revenues.. -- (17) 74 -- -- -- (1,476) -- --
Equity in
earnings of
affiliates..... -- (12) -- -- -- -- -- -- (7)
Other revenues.. -- (9) -- -- -- -- -- -- 3
------------- ---------- ------- -------- --------- ---------- -------- ---------- -------
Total revenues.. -- (38) 74 -- -- -- (320) -- 1,152
------------- ---------- ------- -------- --------- ---------- -------- ---------- -------
OPERATING COSTS
AND EXPENSES
Hotels.......... -- (9) 52 2 -- -- (275) -- 614
Other........... -- (18) -- -- -- -- -- -- 11
------------- ---------- ------- -------- --------- ---------- -------- ---------- -------
Total operating
costs and
expenses....... -- (27) 52 2 -- -- (275) -- 625
------------- ---------- ------- -------- --------- ---------- -------- ---------- -------
OPERATING
PROFIT......... -- (11) 22 (2) -- -- (45) -- 527
Minority
interest....... -- 4 17 1 -- -- -- -- (10)
Corporate
expenses....... -- 1 -- -- -- -- -- -- (44)
Interest
expense........ (62) 5 (25) -- -- -- -- -- (479)
Dividends on
Convertible
Preferred
Securities..... -- -- -- -- -- -- -- -- --
Interest
income......... (3) 4 1 -- (8) -- 10 -- 21
------------- ---------- ------- -------- --------- ---------- -------- ---------- -------
Income (loss) before
income taxes... (65) 3 15 (1) (8) -- (35) -- 15
Benefit
(provision) for
income taxes... 26 (3) (6) -- 3 -- 14 10 (1)
------------- ---------- ------- -------- --------- ---------- -------- ---------- -------
Income (loss)
before
extraordinary
items ......... $ (39) $ -- $ 9 $ (1) $ (5) $-- $ (21) $ 10 14
============= ========== ======= ======== ========= ========== ======== ========== =======
Basic loss per
OP Unit......... $ .05
=======
Ratio of
earnings to
fixed charges... 1.1x
=======
See Notes to the Unaudited Pro Forma Statements of Operations.
13
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
ASSUMING 100% PARTICIPATION WITH NO NOTES ISSUED
A. Represents the adjustment to reduce revenues, operating expenses,
corporate expenses, interest expense, interest income and income taxes for the
spin-off of Crestline.
B. Represents the adjustment to record the historical revenues, operating
expenses, interest expense, income taxes and to reduce interest income
associated with the acquisition of the equity and debt interests for the
Blackstone Acquisition.
C. Represents the adjustment to record the historical revenues, operating
expenses, minority interest, interest expense, income taxes and to reduce
interest income associated with the 1998 acquisition of, or purchase of
controlling interests in 11 full-service properties.
D. Represents the adjustment to record the historical revenues, operating
expenses, minority interest, interest expense, income taxes and to reduce
interest income associated with the 1997 acquisition of, or purchase of
controlling interests in, 18 full-service properties.
E. Represents the adjustment to record historical revenues, operating
expenses, minority interest, interest expense, income taxes and to reduce
interest income for the 1998 sale of the New York Marriott East Side and the
Napa Valley Marriott, including the elimination of the non-recurring gains on
the sales totalling $50 million and related taxes of $20 million in 1998.
F. Represents the adjustment to reduce the interest expense, interest income
and to record income taxes associated with the refinancing or payoff of
mortgage debt for three full-service properties (Marriott's Orlando World
Center, the Philadelphia Marriott and the San Francisco Marriott).
G. Represents the adjustment to record interest expense and related
amortization of deferred financing fees, reduce interest income, and to record
income taxes as a result of the Senior Note Refinancing and the Series C
Senior Notes Offering. The net adjustment of $27 million for the First Three
Quarters 1998 is comprised of $85 million of interest expense related to the
New Senior Notes (including deferred financing fee amortization of $3
million), $20 million of net interest expense related to the New Credit
Facility (including deferred financing fee amortization of $2 million) plus
$30 million of interest expense related to the Series C Senior Notes Offering
(including deferred financing fee amortization of $.7 million), less $88
million of interest expense related to the Old Senior Notes (including
deferred financing fee amortization of $2 million) less $20 million of
interest expense related to the mortgage debt refinanced in conjunction with
the Series C Senior Note Offering. The net adjustment of $62 million for
fiscal year 1997 is comprised of $139 million of interest expense related to
the New Senior Notes (including deferred financing fee amortization of $4
million), $25 million of interest expense related to the New Credit Facility
(including deferred financing fee amortization of $2 million) plus $43 million
of interest expense related to the Series C Senior Notes Offering (including
deferred financing fee amortization of $1 million), less $116 million of
interest expense related to the Old Senior Notes (including deferred financing
fee amortization of $3 million) less $29 million of interest expense related
to the mortgage debt refinanced in conjunction with the Series C Senior Note
Offering. The adjustment excludes the extraordinary loss of $148 million, net
of taxes, related to the Senior Note Refinancing resulting from the write-off
of deferred financing fees and the payment of bond tender and consent fees.
H. Represents the adjustment for revenues, operating expenses, minority
interest, interest expense, corporate expenses, income taxes and interest
income to deconsolidate the Non-Controlled Subsidiaries and reflect the
Operating Partnership's share of income as equity in earnings of affiliate.
I. Represents the adjustment to reduce depreciation expense of $7 million
and $11 million for First Three Quarters 1998 and fiscal year 1997 related to
certain furniture and equipment sold to the Non-Controlled Subsidiary, record
interest income of $4 million and $5 million for First Three Quarters 1998 and
fiscal year 1997 earned on the 7%, $75 million in notes from the Non-
Controlled Subsidiaries and reduce the lease payment to the Operating
Partnership from the Lessee.
J. Represents the adjustment to record the historical revenues, operating
expenses, minority interest, interest expense, interest income and income
taxes associated with the Mergers, including three partnerships not previously
consolidated by the Operating Partnership.
K. Represents the adjustment to record additional depreciation expense and
the decrease in minority interest expense related to the purchase of the
remaining minority interests in the Private Partnerships.
L. Represents the adjustment to reduce interest income and income taxes for
the estimated $247 million cash payment of the Special Dividend to
shareholders of Host Marriott (and the Blackstone Entities).
14
M. Represents the adjustment to remove hotel revenues, management fees and
other expenses of $224 million and $288 million, respectively, for First Three
Quarters 1998 and fiscal year 1997, and to record rental revenues associated
with the leasing of certain hotel properties to Crestline and other lessees
and interest income of $3 million and $5 million for First Three Quarters 1998
and fiscal year 1997 earned on the 6%, $85 million in notes from Crestline.
First Three Quarters 1998 included a $320 million reduction to rental income
to record deferred revenue for percentage rents in accordance with EITF 98-9.
Management believes the change to the lease structure described above will not
impact hotel operating results because the hotel manager and asset management
function will remain unchanged. Rental revenues under the Leases are based on
the greater of Percentage Rent or Minimum Rent. Except as noted total rent in
the pro forma statement of operations is calculated based on the historical
gross sales of the property and the negotiated rental rates and thresholds by
property as if the leases were entered into on the first day of fiscal year
1997. There are generally three sales categories utilized in the rent
calculation: rooms, food and beverage and other. For rooms and food and
beverage, there are three tiers of rent with two thresholds, while the other
category generally has two tiers of rent and one threshold. The percentage
rent thresholds are increased annually on the first day of each year after the
initial lease year based on a blended increase of the Consumer Price Index
("CPI") and a wage and benefit index. For purposes of the pro formas, 1997 is
the assumed initial lease year and the blended increase applied to the
thresholds at January 3, 1998 is assumed to be 3%. Minimum rent is expressed
as a fixed dollar amount that increases annually on the first day of each year
after the initial lease year as 50% of the CPI increase. Accordingly, the 1998
rent thresholds and minimum rent included in the pro formas were adjusted as
of January 3, 1998 for the 1997 increases in the indices. Rental revenues is
recognized only for leases to be executed with Crestline at or prior to
completion of the REIT Conversion. The execution of the leases is dependent
upon the distribution of the Crestline common stock to the Host's
stockholders, and to certain contingencies that are outside the control of the
Operating Partnership, including consent of shareholders, lenders, debt
holders, partners and ground lessors of Host. The Operating Partnership
believes that negotiations with third parties to complete the REIT Conversion
will not result in any material change to the leases. The table below details
gross sales, minimum rent and total rent for all full-service properties to be
leased and summarized amounts for the limited-service properties to be
subleased:
FISCAL YEAR 1997 FIRST THREE QUARTERS 1998
------------------- ------------------------------
TOTAL
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL RENT
PROPERTY SALES RENT RENT SALES RENT RENT RECOGNIZED
- -------- ----- ------- ----- ----- ------- ----- ----------
(IN MILLIONS)
Grand Hotel Resort and Golf
Club...................... $23.4 $2.8 $4.2 $18.0 $2.0 $3.7 $2.0
Scottsdale Suites.......... 11.9 3.0 5.0 8.2 2.1 3.4 2.1
The Ritz-Carlton, Phoenix.. 23.3 4.6 7.2 17.3 3.2 5.5 3.2
Coronado Island Resort..... 22.0 2.1 2.1 16.2 1.5 3.6 1.5
Costa Mesa Suites.......... 9.7 1.9 3.3 7.2 1.3 2.3 1.3
Desert Springs Resort and
Spa....................... 103.3 21.3 30.3 80.3 15.0 22.6 15.0
Manhattan Beach............ 16.3 2.4 4.8 12.2 1.7 3.6 1.7
Marina Beach .............. 21.1 4.6 7.1 16.9 3.2 6.2 3.2
Newport Beach.............. 33.5 5.5 8.7 24.0 3.9 6.8 3.9
Newport Beach Suites....... 11.0 2.6 4.1 8.0 1.8 3.0 1.8
Ontario Airport............ 12.1 1.8 3.4 8.3 1.3 2.2 1.3
San Diego Marriott Hotel
and Marina................ 103.3 38.0 39.6 78.6 26.7 31.1 26.7
San Diego Mission Valley... 16.7 3.4 5.1 12.6 2.4 5.6 2.5
San Francisco Airport...... 43.8 8.2 13.2 32.2 5.8 9.5 5.8
San Francisco Fisherman's
Wharf..................... 17.8 4.0 6.4 12.1 2.8 4.3 2.8
San Francisco Moscone
Center.................... 120.2 20.7 37.9 90.5 14.6 28.5 14.6
San Ramon.................. 19.7 4.4 5.1 14.4 3.1 4.0 3.1
Santa Clara................ 47.3 7.8 16.5 37.2 5.5 13.5 8.8
The Ritz-Carlton, Marina
del Rey................... 32.4 5.5 10.8 23.4 3.9 7.9 3.9
The Ritz-Carlton, San
Francisco................. 50.1 9.6 14.7 34.2 6.7 10.3 6.7
Torrance................... 20.5 2.3 3.5 15.0 1.6 5.1 1.6
Denver Southeast........... 21.5 3.0 6.2 14.9 2.1 4.1 2.1
Denver Tech Center......... 26.8 5.1 8.3 20.1 3.6 6.0 3.6
Denver West................ 13.7 1.8 4.0 9.6 1.2 2.7 1.7
Marriott's Mountain Resort
at Vail................... 17.6 3.0 5.1 14.1 2.1 4.5 2.1
Hartford/Farmington........ 18.4 3.5 4.7 13.4 2.4 3.5 2.4
Hartford/Rocky Hill........ 11.6 1.5 2.7 8.5 1.1 2.0 1.1
Fort Lauderdale Marina..... 28.5 4.3 7.9 20.4 3.0 5.7 3.2
Harbor Beach Resort(2)..... 58.1 16.5 19.3 43.2 11.6 14.0 11.6
Jacksonville............... 11.8 1.8 3.6 8.0 1.2 2.4 1.2
Miami Airport.............. 29.7 3.9 8.4 21.6 2.8 6.1 2.9
Orlando World Center....... 128.2 23.5 39.6 98.7 16.5 30.4 18.3
Palm Beach Gardens......... 11.8 1.9 3.7 8.5 1.4 3.0 1.4
Singer Island (Holiday
Inn)...................... 6.6 1.4 2.5 5.2 1.0 2.1 1.0
Tampa Airport.............. 17.1 1.6 3.5 13.1 1.1 2.7 1.1
Tampa Westshore............ 15.0 1.8 3.6 10.8 1.3 2.6 1.3
15
FISCAL YEAR 1997 FIRST THREE QUARTERS 1998
------------------------- ----------------------------------
TOTAL
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL RENT
PROPERTY SALES RENT RENT SALES RENT RENT RECOGNIZED
- -------- -------- ------- -------- -------- ------- ------ ----------
(IN MILLIONS)
The Ritz-Carlton, Naples.. $ 66.4 $ 18.1 $ 23.3 $ 53.1 $ 12.7 $ 18.0 $ 12.7
Atlanta Marriott Marquis.. 85.4 21.3 33.3 58.6 15.0 25.6 15.0
Atlanta Midtown Suites.... 10.5 1.8 3.5 7.8 1.3 2.6 1.3
Atlanta Norcross.......... 7.6 1.0 1.7 5.6 0.7 1.2 0.7
Atlanta Northwest......... 14.9 2.7 4.3 11.3 1.9 3.3 1.9
Atlanta Perimeter......... 16.6 2.5 4.5 12.6 1.7 3.5 1.7
JW Marriott Hotel at
Lenox.................... 24.8 3.7 6.8 17.7 2.6 5.0 2.6
The Ritz-Carlton,
Atlanta.................. 30.2 5.8 8.8 21.7 4.1 6.8 4.1
The Ritz-Carlton,
Buckhead................. 49.3 13.1 16.3 35.8 9.2 11.7 9.2
Chicago/Deerfield Suites.. 10.2 1.8 3.1 7.4 1.3 2.3 1.3
Chicago/Downers Grove
Suites................... 9.0 1.8 2.9 6.7 1.3 2.2 1.3
Chicago/Downtown
Courtyard................ 16.3 3.1 4.9 12.2 2.2 3.9 2.2
Chicago O'Hare............ 40.0 5.5 11.5 28.8 3.9 8.2 3.9
South Bend................ 9.9 1.1 2.1 7.0 0.8 1.5 0.8
New Orleans .............. 66.4 17.5 21.8 47.6 12.3 15.8 12.3
Bethesda.................. 23.2 3.2 5.6 17.3 2.2 4.1 2.2
Gaithersburg/Washingtonian
Center................... 13.2 2.4 3.8 9.7 1.7 2.8 1.7
Boston/Newton............. 27.4 4.8 7.8 19.1 3.4 5.5 3.4
Detroit Romulus........... 8.8 1.1 1.8 6.6 0.8 1.4 0.8
The Ritz-Carlton,
Dearborn................. 25.7 3.6 5.5 17.7 2.5 4.0 2.5
Minneapolis/Bloomington... 20.2 3.3 6.5 13.8 2.3 4.7 3.1
Minneapolis City Center... 27.5 3.7 7.5 20.4 2.4 5.2 2.4
Minneapolis Southwest..... 14.9 2.7 4.8 10.1 1.9 4.0 1.9
Kansas City Airport....... 14.3 1.7 3.7 9.9 1.2 2.5 1.2
Nashua.................... 7.5 0.8 1.3 5.3 0.5 0.9 0.5
Hanover................... 22.5 4.7 6.6 15.1 3.3 4.3 3.9
Newark Airport............ 39.4 6.5 11.8 29.2 4.6 8.6 4.6
Park Ridge................ 16.0 2.5 4.0 11.9 1.7 4.2 1.7
Saddle Brook.............. 10.7 1.3 2.1 7.8 0.9 1.7 0.9
Albany.................... 18.5 3.5 6.1 12.4 2.5 5.2 2.7
New York Marriott
Financial Center......... 39.6 7.7 13.2 29.1 5.4 10.1 5.4
New York Marriott
Marquis.................. 210.3 40.0 60.8 155.4 29.7 47.6 29.7
Marriott World Trade
Center................... 65.4 12.2 19.4 49.1 8.6 14.9 8.6
Charlotte Executive Park.. 14.0 2.3 3.7 9.8 1.6 2.6 1.6
Raleigh Crabtree Valley... 14.9 2.4 3.9 10.9 1.7 2.8 1.7
Oklahoma City............. 15.6 2.0 3.8 10.4 1.4 2.4 1.4
Oklahoma City Waterford... 9.1 1.5 2.7 6.1 1.0 1.7 1.0
Portland.................. 26.4 4.1 7.5 17.6 2.9 4.8 2.9
Philadelphia (Convention
Center).................. 80.7 14.2 25.0 58.2 10.0 17.8 10.0
Philadelphia Airport...... 25.0 4.1 7.6 18.6 2.9 5.6 2.9
Pittsburgh City Center.... 16.4 1.9 3.0 11.1 1.3 2.2 1.3
Memphis................... 10.6 1.5 3.2 5.7 1.0 1.8 1.0
Dallas/Fort Worth......... 28.9 5.9 9.3 21.9 4.1 7.0 4.1
Dallas Quorum............. 25.7 4.2 8.2 18.3 3.0 5.8 3.7
El Paso................... 11.6 0.9 2.3 7.8 0.6 1.4 0.6
Houston Airport .......... 21.6 2.8 6.0 16.9 2.0 4.6 2.7
JW Marriott Houston....... 27.2 5.0 8.0 20.1 3.5 5.9 3.5
Plaza San Antonio......... 13.8 2.9 4.6 9.7 2.0 3.3 2.0
San Antonio Rivercenter... 68.9 17.5 24.5 49.3 12.3 17.8 12.3
San Antonio Riverwalk..... 29.3 6.1 10.3 21.7 4.3 7.6 4.4
Salt Lake City............ 28.5 5.6 9.5 21.1 3.9 7.2 4.2
Dulles Airport............ 14.6 1.8 4.0 10.9 1.2 3.0 1.7
Key Bridge................ 29.4 5.6 10.2 21.2 3.9 7.4 3.9
Norfolk Waterside......... 18.1 3.3 5.4 12.8 2.4 3.8 2.4
Pentagon City Residence
Inn...................... 11.7 3.5 5.5 8.7 2.5 4.2 2.5
The Ritz-Carlton, Tysons
Corner................... 34.4 5.9 9.8 24.9 4.1 7.3 4.1
Washington Dulles Suites.. 10.3 2.5 4.0 7.8 1.8 3.0 1.8
16
FISCAL YEAR 1997 FIRST THREE QUARTERS 1998
-------------------------- -------------------------------------
TOTAL
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL RENT
PROPERTY SALES RENT RENT SALES RENT RENT RECOGNIZED
- -------- -------- ------- -------- -------- ------- ------- ----------
(IN MILLIONS)
Westfields.............. $ 28.0 $ 4.7 $ 7.4 $ 20.3 $ 3.3 $ 5.4 $ 3.3
Williamsburg............ 12.6 1.8 2.8 9.3 1.3 2.1 1.3
Washington Metro
Center................. 25.2 4.5 7.3 19.2 3.2 5.3 3.2
Calgary................. 13.4 1.7 1.7 9.8 1.2 2.3 1.2
Toronto Airport......... 17.1 2.9 5.6 13.0 2.0 4.2 2.0
Toronto Eaton Centre.... 21.1 6.1 7.1 16.0 4.3 5.6 4.3
Toronto Delta
Meadowvale............. 16.1 2.6 4.9 10.6 1.9 3.1 1.9
Fairview Park........... 22.5 3.9 7.3 16.3 2.8 5.2 2.8
Dayton.................. 18.2 3.2 6.0 13.4 2.3 4.3 2.3
Research Triangle Park.. 9.1 1.4 2.9 6.8 1.0 2.3 1.0
Detroit Marriott
Southfield............. 8.8 1.2 2.1 6.9 0.9 1.7 0.9
Detroit Marriott
Livonia................ 10.0 1.4 2.6 7.4 1.0 1.9 1.0
Fullerton............... 6.8 1.2 1.8 5.0 0.8 1.3 0.8
Marriott O'Hare Suites.. 14.4 2.7 4.9 10.8 1.9 4.0 1.9
Albuquerque............. 16.4 3.6 3.6 11.1 2.5 2.6 2.5
Greensboro-High Point... 13.6 3.3 3.3 10.2 2.3 2.4 2.3
Houston Medical Center.. 16.5 4.0 4.0 12.2 2.8 2.9 2.8
Miami Biscayne Bay...... 26.8 6.5 6.6 20.5 4.5 5.1 4.5
Marriott Mountain
Shadows Resort......... 24.1 4.4 4.5 16.9 3.1 3.1 3.1
Seattle SeaTac Airport.. 23.1 6.7 6.7 17.5 4.7 5.1 4.7
Four Seasons, Atlanta... 15.6 5.8 5.9 14.2 4.1 4.5 4.1
Four Seasons,
Philadelphia........... 41.1 7.9 12.4 30.6 5.6 10.1 5.6
Grand Hyatt, Atlanta.... 25.3 10.0 10.0 22.6 7.0 8.2 7.0
Hyatt Regency,
Burlingame............. 47.9 8.8 17.6 39.5 6.2 15.1 9.0
Hyatt Regency,
Cambridge.............. 32.4 6.7 11.9 26.8 4.7 10.4 6.1
Hyatt Regency, Reston... 30.5 6.5 11.3 24.2 4.5 9.2 4.8
Swissotel, Atlanta...... 22.2 5.0 6.3 17.2 3.5 5.8 3.5
Swissotel, Boston....... 26.8 6.4 8.5 20.5 4.5 6.9 4.5
Swissotel, Chicago...... 38.1 10.9 15.1 28.9 7.7 12.0 7.7
The Drake (Swissotel),
New York............... 38.8 11.6 13.6 34.2 8.2 13.4 8.2
The Ritz-Carlton, Amelia
Island................. 45.7 10.3 13.4 37.4 7.2 11.1 7.2
The Ritz-Carlton,
Boston................. 40.1 6.9 10.5 31.4 4.8 8.8 4.8
Non-Controlled
Subsidiary Rent........ -- (16.5) (16.5) -- (11.4) (11.4) (11.4)
-------- ------ -------- -------- ------ ------- ------
Total Full-service
Properties............. 3,600.8 699.4 1,079.1 2,671.0 493.1 826.9 507.3
Total Courtyard
Properties(3).......... 212.0 50.6 57.3 159.2 35.0 42.2 42.2
Total Residence
Inns(3)................ 69.9 17.2 19.6 50.6 12.0 13.9 13.9
-------- ------ -------- -------- ------ ------- ------
Total................. $3,882.7 $767.2 $1,156.0 $2,880.8 $540.1 883.0 $563.4
======== ====== ======== ======== ====== ======
Less: Deferred rent
under EITF 98-9........ (319.6)
-------
Total rent
recognized........... $ 563.4
=======
N. Represents the adjustment to eliminate interest income recorded for the
$92 million note receivable contributed to Crestline for the First Three
Quarters 1998.
O. Represents the adjustment to the income tax provision to reflect the REIT
Conversion.
P. Represents the adjustment to eliminate non-recurring expenses incurred in
connection with the REIT Conversion. Management expects that the total
estimated non-recurring expenses to be incurred will be approximately $75
million.
- --------
(1) The amount of earnings and profit distribution shown reflects only the
estimated distribution to be made in connection with the REIT Conversion.
The actual amount of the distribution will be based in part upon the
estimated amount of Host's accumulated earnings and profits for tax
purposes. To the extent that the distributions made in connection with the
Initial E&P Distribution are not sufficient to eliminate Host's estimated
accumulated earnings and profits, Host REIT will make one or more
additional taxable distributions to its shareholders (in the form of cash
or securities) prior to the last day of its first full taxable year as a
REIT (currently expected to be December 31, 1999) in an amount intended to
be sufficient to eliminate such earnings and profits, and the Operating
Partnership will make corresponding distributions to all holders of OP
Units (including Host REIT) in an amount sufficient to permit Host REIT to
make such additional distributions.
(2) The Harbor Beach Resort minimum and total rent is not calculated using
historical gross sales but instead is based on gross profit. The total
rent is greater than the amounts shown, but such difference is not
material for the periods presented.
(3) The Courtyard and Residence Inn properties will be subleased by subsidiaries
of the Company to subsidiaries of Crestline under sublease agreements. The
owners of these properties have not yet consented to the subleases but have
agreed to waive any defaults under the related leases until February 17,
1999 to provide the Company with additional time to obtain such consents
(which could require modifications in the terms of the subleases or
structural or other changes related thereto). The Company expects to obtain
such consents during this period, but if such consents are not obtained, the
Company may be required to terminate the subleases and contribute to a Non-
Controlled Subsidiary its equity interests in the subsidiaries leasing these
properties. This change would have the effect of reducing the Company's
revenues by $54 million and $75 million for the First Three Quarters 1998
and fiscal year 1997, respectively, and increasing the Company's net income
by approximately $2 million for each period. The Company does not believe
that any changes that might be required to the subleases would result in
material changes to the lease terms.
17
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 11, 1998
100% PARTICIPATION WITH NOTES ISSUED
(IN MILLIONS, EXCEPT OP UNIT AMOUNTS)
ACQUISITIONS, DISPOSITIONS
AND OTHER ACTIVITIES
------------------------------------
A B C
HOST HOST DEBT
MARRIOTT MARRIOTT REPAYMENT
CORPORATION DISTRIBUTION HOTELS BLACKSTONE & ISSUANCE
HISTORICAL ADJUSTMENT HISTORICAL ACQUISITION ACQUISITIONS REFINANCING
----------- ------------ ---------- ----------- ------------ -----------
ASSETS
Property and
equipment,
net............ $5,937 $(649) $5,288 $1,449 $-- $--
Notes and other
receivables,
net............ 32 (3) 29 66 -- --
Due from
managers....... 88 (5) 83 5 -- --
Investments in
affiliates..... 18 -- 18 -- -- --
Other assets.... 319 2 321 -- -- 10
Receivable from
Lessee for
working
capital........ -- -- -- -- -- --
Cash, cash
equivalents and
short-term
marketable
securities..... 575 (27) 548 (226) -- 488
(423)
------ ----- ------ ------ ---- ----
$6,969 $(682) $6,287 $1,294 $-- $ 75
====== ===== ====== ====== ==== ====
LIABILITIES AND
EQUITY
Debt(J)......... $4,224 $(213) $4,011 $ 638 $-- $498
(423)
--
Convertible debt
obligation to
Host Marriott
Corporation.... -- 567 567 -- -- --
Accounts payable
and accrued
expenses....... 70 (23) 47 -- -- --
Deferred income
taxes.......... 526 (62) 464 -- -- --
Other
liabilities.... 447 (10) 437 -- -- --
------ ----- ------ ------ ---- ----
Total
liabilities.... 5,267 259 5,526 638 -- 75
Convertible
Preferred
Securities..... 550 (550) -- -- -- --
Limited Partner
interests of
third parties
at redemption
value (on a pro
forma basis
51.1 million OP
Units
outstanding)(K).. -- -- -- 656 -- --
Equity..........
General Partner
(on a proforma
basis
.2 million OP
Units
outstanding)(K)..
Limited Partner
interests of
Host REIT (on
a pro forma
basis 204.3
million OP
Units
outstanding)(K).. 1,152 (391) 761 -- -- --
------ ----- ------ ------ ---- ----
$6,969 $(682) $6,287 $1,294 $-- $ 75
====== ===== ====== ====== ==== ====
Book value per
OP Unit........
MERGERS AND REIT CONVERSION ACTIVITIES
-------------------------------------------------------------------------
D E F G L H I
EARNINGS
NON- & PROFITS LEASE DEFERRED
CONTROLLED PRIVATE DISTRIBU- CONTRIBUTION CONVER- TAX PRO
SUBSIDIARY MERGERS PARTNERSHIPS TION(1) TO CRESTLINE SION ADJUSTMENT FORMA
---------- ------- ------------ --------- ------------ ------- ---------- ------
ASSETS
Property and
equipment,
net............ $(212) $530 $ 61 $ -- $ -- $-- $ -- $7,116
Notes and other
receivables,
net............ 109 (3) -- -- -- -- -- 201
Due from
managers....... (1) 12 -- -- -- (85) -- 14
Investments in
affiliates..... 14 -- -- -- -- -- -- 32
Other assets.... 3 23 (11) -- -- -- -- 346
Receivable from
Lessee for
working
capital........ -- -- -- -- -- 85 -- 85
Cash, cash
equivalents and
short-term
marketable
securities..... (9) 7 (11) (247) (15) -- -- 119
7
---------- ------- ------------ --------- ------------ ------- ---------- ------
$ (96) $569 $ 39 $(247) (8) $-- $ -- $7,913
========== ======= ============ ========= ============ ======= ========== ======
LIABILITIES AND
EQUITY
Debt(J)......... $ (68) $581 $-- $ -- $ -- $-- $ -- $5,237
Convertible debt
obligation to
Host Marriott
Corporation.... -- -- -- -- -- -- -- 567
Accounts payable
and accrued
expenses....... 4 8 -- -- -- -- -- 59
Deferred income
taxes.......... 6 -- -- -- -- -- (195) 275
Other
liabilities.... (38) (20) (6) -- -- 320 -- 693
---------- ------- ------------ --------- ------------ ------- ---------- ------
Total
liabilities.... (96) 569 (6) -- -- 320 (195) 6,831
Convertible
Preferred
Securities..... -- -- -- -- -- -- -- --
Limited Partner
interests of
third parties
at redemption
value (on a pro
forma basis
51.1 million OP
Units
outstanding)(K).. -- -- 45 -- -- -- -- 701
Equity..........
General Partner
(on a proforma
basis
.2 million OP
Units
outstanding)(K)..
Limited Partner
interests of
Host REIT (on
a pro forma
basis 204.3
million OP
Units
outstanding)(K).. -- -- -- (247) (8) (320) 195 381
---------- ------- ------------ --------- ------------ ------- ---------- ------
$ (96) $569 $ 39 $(247) $ (8) $-- $ -- $7,913
========== ======= ============ ========= ============ ======= ========== ======
Book value per
OP Unit........ $ 4.24
======
See Notes to the Unaudited Pro Forma Balance Sheet.
18
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
100% PARTICIPATION WITH NOTES ISSUED
A. Represents the adjustment to record the spin-off of Crestline:
. Reduce property and equipment by $649 million
. Reduce receivables by $3 million related to certain Crestline notes held
by the Operating Partnership
. Reduce due from managers by $5 million
. Increase other assets by $2 million
. Reduce cash, cash equivalents and short-term marketable securities by $27
million
. Reduce debt by $213 million
. Reduce accounts payable and accrued expenses by $23 million
. Reduce deferred income taxes by $62 million
. Reduce other liabilities by $10 million
. Reduce equity by $391 million
. Eliminate the $550 million Convertible Preferred Securities of Host
Marriott which remain an obligation of Host REIT
. Record the $567 million of Convertible Debt Obligation to Host Marriott
which is eliminated in consolidation on the historical financial
statements of Host Marriott Corporation
B. Represents the adjustment to record the Blackstone Acquisition of 12
full-service properties (5,520 rooms) and a mortgage note secured by a
thirteenth full-service property including the issuance of 47.5 million OP
Units as determined through negotiations between the Operating Partnership and
Blackstone:
. Record property and equipment of $1,449 million
. Record mortgage note receivable of $66 million
. Record increase in due from managers of $5 million
. Record the use of cash of $226 million
. Record the assumption of mortgage debt of $638 million
. Record the issuance of 47.5 million OP Units (including OP Units
estimated to be issued in April 1999) at an estimated price of $12.50 per
OP Unit, plus $1.00 per unit for 41.5 million OP Units for the Special
Dividend, plus the issuance of 1.4 million shares of Crestline at an
estimated share price of $15.10 with a total estimated fair value of $656
million.
The purchase price of the Blackstone properties and mortgage note was
determined based on the estimated fair value of the 47.5 million OP Units and
the 1.4 million shares of Crestline expected to be issued. The number of units
to be issued will not increase or decrease depending on the stock price of
Host Marriott at the time of closing of the acquisition, but the actual number
of units to be issued will depend upon certain prorations and closing
adjustments and on the deemed value of the Initial E&P Distribution which the
Blackstone Entities are not entitled to receive (which will be determined 91
days after closing).
C. Represents the adjustment to record the Series C Senior Note Offering:
. Record the issuance of $500 million of notes, net of the discount of
approximately $2 million at issuance, and the repayment of approximately
$423 million of debt
. Record the deferred financing fees of $10 million
The remaining proceeds will be utilized to pay the approximate $75 million in
REIT conversion expenses.
D. Represents the adjustment to deconsolidate the assets and liabilities of
the Non-Controlled Subsidiaries and to reflect the sale of certain hotel
furniture and equipment to the Non-Controlled Subsidiaries:
. Record decrease in property and equipment of $(212) million, including
$75 million of hotel furniture and equipment sold to the Non-Controlled
Subsidiary
. Record receivable from Non-Controlled Subsidiary for the furniture and
equipment loan of $75 million and other notes totaling $34 million
. Record decrease in due from managers of $1 million
. Record investment in subsidiary of $14 million
. Record increase in other assets of $3 million
19
. Record decrease in cash of $9 million
. Record decrease in debt of $68 million of debt transferred to the Non-
Controlled Subsidiaries.
. Record increase in accounts payable and accrued expenses of $4 million
. Record increase in deferred taxes of $6 million
. Record decrease in other liabilities of $38 million
E. Represents the adjustment to record the Mergers and issuance of Notes at
the Note Election Amount (the greater of Liquidation Value or 80% of Exchange
Value) to the Limited Partners:
. Record property and equipment of $530 million
. Record decrease in notes receivable of $3 million
. Record increase in due from managers of $12 million
. Record other assets of $23 million
. Record cash of $7 million
. Record debt of $581 million including $258 million of Notes to the
Limited Partners at the Note Election Amount
. Record accounts payable and accrued expenses of $8 million
. Record decrease in other liabilities of $20 million
The value of 6.56% Notes expected to be issued to the limited partners of
each Partnership is (in millions):
PURCHASE PRICE-- INCREASE TO
VALUE OF PROPERTY AND
NOTES ISSUED EQUIPMENT
---------------- ------------
Atlanta Marquis................................ $ 19 $ 19
Desert Springs................................. 29 29
Hanover........................................ 4 4
MHP............................................ 74 55
MHPII.......................................... 73 67
Chicago Suites................................. 11 37
MDAH........................................... 41 157
PHLP........................................... 7 162
---- ----
$258 $530
==== ====
The purchase price for minority interests (Atlanta Marquis, Desert Springs,
Hanover, MHP and MHP2) was allocated to property to the extent that the
purchase price exceeded the minority interest liability recorded. The purchase
price for the three partnerships that are presently not consolidated was
allocated in accordance with APB Opinion Number 16 with the debt of each
partnership recorded at estimated fair value, all assets and liabilities,
except for property being recorded at historical carrying values of each
partnership with the residual allocated to property. The amounts allocated to
property are in all cases less than estimated current replacement cost.
F. Represents the adjustment to record the purchase of the remaining
minority interests in four Private Partnerships:
. Record property and equipment of $61 million
. Record decrease in other assets of $11 million
. Record use of cash of $11 million
. Record decrease in minority interest liabilities of $6 million
. Record the issuance of 3.6 million OP Units totaling approximately $45
million
G. Represents the estimated $247 million cash payment of the Special
Dividend to shareholders of Host Marriott and the Blackstone Entities as
partial consideration for the Blackstone Acquisition, which when combined with
the value of the Crestline common stock to be distributed to shareholders of
Host (estimated to be approximately $1.53 per share for a total Initial E&P
Distribution of approximately $2.53 per share) will
20
represent the Initial E&P Distribution. The aggregate value of the Crestline
common stock and the Special Dividend to be distributed to Host stockholders
(and the Blackstone Entities) in connection with the Initial E&P Distribution
and the Blackstone Acquisition is currently estimated to be approximately $582
million, of which approximately $247 is expected to be represented by the
Special Dividend.(/1/)
H. Represents the adjustment to record the transfer of working capital to
Crestline related to the leasing of the Operating Partnership's hotels by
decreasing working capital and recording a receivable from the lessee of $85
million and the adjustment to record $320 million in deferred revenue in
connection with the application of EITF 98-9 to the Operating Partnership's
rental revenue.
I. Represents the adjustment to record the effect on deferred taxes for the
change in tax status resulting from the REIT Conversion by decreasing deferred
taxes and increasing equity by $195 million.
J. The Operating Partnership's pro forma aggregate debt maturities at
September 11, 1998, excluding $8 million of capital lease obligations and the
$8 million debt discount recorded in conjunction with the Senior Note
Refinancing, are (in millions):
1998............................................................... $ 236
1999............................................................... 130
2000............................................................... 133
2001............................................................... 98
2002............................................................... 148
Thereafter......................................................... 5,059
------
$5,804
======
K. The estimated number of OP Units includes the following (in millions):
Limited Partner interests of Host REIT.............................. 204.3
General Partner interests of Host REIT.............................. 0.2
Limited Partner interests of Private Partnerships................... 3.6
Limited Partner interests of Blackstone Group....................... 47.5
-----
Total OP Units.................................................... 255.6
=====
L. Represents the adjustment to record the contribution of $15 million in
cash to Crestline as a reduction in equity and to record the sale of an
investment of approximately $7 million in a joint venture which holds a
mortgage note of approximately $130 million from a consolidated subsidiary of
Host.
- --------
(1) The amount of earnings and profit distribution shown reflects only the
estimated distribution to be made in connection with the REIT Conversion.
The actual amount of the distribution will be based in part upon the
estimated amount of Host's accumulated earnings and profits for tax
purposes. To the extent that the distributions made in connection with the
Initial E&P Distribution are not sufficient to eliminate Host's estimated
accumulated earnings and profits, Host REIT will make one or more
additional taxable distributions to its shareholders (in the form of cash
or securities) prior to the last day of its first full taxable year as a
REIT (currently expected to be December 31, 1999) in an amount intended to
be sufficient to eliminate such earnings and profits, and the Operating
Partnership will make corresponding distributions to all holders of OP
Units (including Host REIT) in an amount sufficient to permit Host REIT to
make such additional distributions.
21
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FIRST THREE QUARTERS 1998
100% PARTICIPATION WITH NOTES ISSUED
(IN MILLIONS, EXCEPT PER OP UNIT AMOUNTS AND RATIOS)
ACQUISITIONS, DISPOSITIONS AND OTHER ACTIVITIES
-------------------------------------------------
A B C E G
HOST HOST
MARRIOTT MARRIOTT
CORPORATION DISTRIBUTION HOTELS BLACKSTONE 1998 BOND
HISTORICAL ADJUSTMENT HISTORICAL ACQUISITION ACQUISITIONS DISPOSITIONS REFINANCING
----------- ------------ ---------- ----------- ------------ ------------ -----------
REVENUE
Rental
revenues....... $ -- $-- $ -- $-- $-- $-- $--
Hotel revenues.. 922 -- 922 122 43 (6) --
Equity in
earnings of
affiliates..... 1 -- 1 -- -- -- --
Other revenues.. 117 (58) 59 -- -- (50) --
------ ---- ----- ---- ---- ---- ----
Total revenues.. 1,040 (58) 982 122 43 (56) --
------ ---- ----- ---- ---- ---- ----
OPERATING COSTS
AND EXPENSES
Hotels.......... 502 -- 502 70 23 (3) --
Other........... 45 (30) 15 -- -- -- --
------ ---- ----- ---- ---- ---- ----
Total operating
costs and
expenses....... 547 (30) 517 70 23 (3) --
------ ---- ----- ---- ---- ---- ----
OPERATING
PROFIT......... 493 (28) 465 52 20 (53) --
Minority
interest....... (36) -- (36) -- (1) 1 --
Corporate
expenses....... (33) 3 (30) -- -- -- --
REIT Conversion
expenses....... (14) -- (14) -- -- -- --
Interest
expense........ (245) (8) (253) (35) (1) 1 (27)
Dividends on
Convertible
Preferred
Securities..... (26) 26 -- -- -- -- --
Interest
income......... 36 2 38 (6) (16) (1) --
------ ---- ----- ---- ---- ---- ----
Income (loss)
before income
taxes.......... 175 (5) 170 11 2 (52) (27)
Benefit
(provision) for
income taxes... (75) 3 (72) (4) (1) 21 11
------ ---- ----- ---- ---- ---- ----
Income (loss)
before
extraordinary
items.......... $ 100 $ (2) $ 98 $ 7 $ 1 $(31) $(16)
====== ==== ===== ==== ==== ==== ====
Basic loss per
OP Unit........
Ratio of
earnings to
fixed charges.. 1.7x 1.8x
====== =====
Deficiency of
earnings to
fixed changes..
MERGERS AND REIT CONVERSION ACTIVITIES
-------------------------------------------------------------------------------
H J K L P/N I/M O
NON- MERGERS EARNINGS LEASE INCOME
CONTROLLED & NOTES PRIVATE & PROFITS OTHER REIT CONVER- TAX PRO
SUBSIDIARY ISSUANCE PARTNERSHIPS DISTRIBUTION(1) ACTIVITIES SION ADJUSTMENT FORMA
---------- -------- ------------ --------------- ---------- -------- ---------- ------
REVENUE
Rental
revenues....... $-- $-- $ -- $ -- $ -- $ 563 $-- $ 563
Hotel revenues.. (14) 56 -- -- -- (1,123) -- --
Equity in
earnings of
affiliates..... (3) -- -- -- -- -- (2)
Other revenues.. (5) -- -- -- -- -- -- 4
---------- -------- ------------ --------------- ---------- -------- ---------- ------
Total revenues.. (22) 56 -- -- -- 560 -- 565
---------- -------- ------------ --------------- ---------- -------- ---------- ------
OPERATING COSTS
AND EXPENSES
Hotels.......... (12) 36 2 -- -- (207) -- 411
Other........... -- -- -- -- -- -- -- 15
---------- -------- ------------ --------------- ---------- -------- ---------- ------
Total operating
costs and
expenses....... (12) 36 2 -- -- (207) -- 426
---------- -------- ------------ --------------- ---------- -------- ---------- ------
OPERATING
PROFIT......... (10) 20 (2) -- -- (353) -- 139
Minority
interest....... 3 18 1 -- -- -- -- (14)
Corporate
expenses....... -- -- -- -- -- -- -- (30)
REIT Conversion
expenses....... -- -- -- -- 14 -- -- --
Interest
expense........ 3 (33) -- -- -- -- -- (345)
Dividends on
Convertible
Preferred
Securities..... -- -- -- -- -- -- --
Interest
income......... 2 1 -- (5) (2) 7 -- 18
---------- -------- ------------ --------------- ---------- -------- ---------- ------
Income (loss)
before income
taxes.......... (2) 6 (1) (5) 12 (346) -- (232)
Benefit
(provision) for
income taxes... 1 (2) -- 2 (5) 138 (77) 12
---------- -------- ------------ --------------- ---------- -------- ---------- ------
Income (loss)
before
extraordinary
items.......... $ (1) $ 4 $ (1) $ (3) $ 7 $ (208) $(77) $(220)
========== ======== ============ =============== ========== ======== ========== ======
Basic loss per
OP Unit........ $(.86)
======
Ratio of
earnings to
fixed charges.. N/A
======
Deficiency of
earnings to
fixed changes.. $(214)
======
See Notes to the Unaudited Pro Forma Statements of Operations.
22
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FISCAL YEAR 1997
100% PARTICIPATION WITH NOTES ISSUED
(IN MILLIONS, EXCEPT PER OP UNIT AMOUNTS AND RATIOS)
ACQUISITIONS, DISPOSITIONS AND OTHER ACTIVITIES
----------------------------------------------------------------
A B C D E F/G
HOST HOST
MARRIOTT MARRIOTT DEBT
CORPORATION DISTRIBUTION HOTELS BLACKSTONE 1998 1997 REPAYMENT
HISTORICAL ADJUSTMENT HISTORICAL ACQUISITION ACQUISITIONS ACQUISITIONS DISPOSITIONS & REFINANCING
----------- ------------ ---------- ----------- ------------ ------------ ------------ -------------
REVENUE
Rental
revenues....... $ -- $-- $ -- $-- $-- $-- $-- $--
Hotel revenues.. 1,093 -- 1,093 148 112 89 (23) --
Equity in
earnings of
affiliates..... 5 -- 5 -- -- -- -- --
Other revenues.. 49 (37) 12 -- -- -- -- --
------ ---- ------ ---- ---- ---- ---- ----
Total revenues.. 1,147 (37) 1,110 148 112 89 (23) --
------ ---- ------ ---- ---- ---- ---- ----
OPERATING COSTS
AND EXPENSES
Hotels.......... 649 -- 649 101 62 42 (10) --
Other........... 49 (20) 29 -- -- -- -- --
------ ---- ------ ---- ---- ---- ---- ----
Total operating
costs and
expenses....... 698 (20) 678 101 62 42 (10) --
------ ---- ------ ---- ---- ---- ---- ----
OPERATING
PROFIT.......... 449 (17) 432 47 50 47 (13) --
Minority
interest........ (32) -- (32) -- (4) 5 (1) --
Corporate
expenses........ (47) 2 (45) -- -- -- -- --
Interest
expense......... (302) (23) (325) (51) (12) (12) 3 (62)
Dividends on
Convertible
Preferred
Securities...... (37) 37 -- -- -- -- -- --
Interest income.. 52 -- 52 (7) (14) (14) -- (3)
------ ---- ------ ---- ---- ---- ---- ----
Income (loss)
before income
taxes........... 83 (1) 82 (11) 20 26 (11) (65)
Benefit
(provision) for
income taxes.... (36) 1 (35) 4 (8) (10) 4 26
------ ---- ------ ---- ---- ---- ---- ----
Income (loss)
before
extraordinary
items........... $ 47 $-- $ 47 $ (7) $ 12 $ 16 $ (7) $(39)
====== ==== ====== ==== ==== ==== ==== ====
Basic earnings
per OP Unit.....
Ratio of earnings
to fixed
charges......... 1.3x 1.3x
====== ======
MERGERS AND REIT CONVERSION ACTIVITIES
---------------------------------------------------------------------
H J K L I/M O
EARNINGS
NON- MERGERS PRIVATE & PROFITS OTHER LEASE INCOME
CONTROLLED & NOTES PARTNER- DISTRI- REIT CONVER- TAX PRO
SUBSIDIARY ISSUANCE SHIPS BUTION(1) ACTIVITIES SION ADJUSTMENT FORMA
---------- -------- -------- --------- ---------- -------- ---------- -------
REVENUE
Rental
revenues....... $-- $-- $-- $-- $-- $ 1,156 $-- $1,156
Hotel revenues.. (17) 74 -- -- -- (1,476) -- --
Equity in
earnings of
affiliates..... (12) -- -- -- -- -- -- (7)
Other revenues.. (9) -- -- -- -- -- -- 3
---------- -------- -------- --------- ---------- -------- ---------- -------
Total revenues.. (38) 74 -- -- -- (320) -- 1,152
---------- -------- -------- --------- ---------- -------- ---------- -------
OPERATING COSTS
AND EXPENSES
Hotels.......... (9) 50 2 -- -- (275) -- 612
Other........... (18) -- -- -- -- -- -- 11
---------- -------- -------- --------- ---------- -------- ---------- -------
Total operating
costs and
expenses....... (27) 50 2 -- -- (275) -- 623
---------- -------- -------- --------- ---------- -------- ---------- -------
OPERATING
PROFIT.......... (11) 24 (2) -- -- (45) -- 529
Minority
interest........ 4 17 1 -- -- -- -- (10)
Corporate
expenses........ 1 -- -- -- -- -- -- (44)
Interest
expense......... 5 (42) -- -- -- -- -- (496)
Dividends on
Convertible
Preferred
Securities...... -- -- -- -- -- -- -- --
Interest income.. 4 1 -- (8) -- 10 -- 21
---------- -------- -------- --------- ---------- -------- ---------- -------
Income (loss)
before income
taxes........... 3 -- (1) (8) -- (35) -- --
Benefit
(provision) for
income taxes.... (3) -- -- 3 -- 14 5 --
---------- -------- -------- --------- ---------- -------- ---------- -------
Income (loss)
before
extraordinary
items........... $-- $-- $ (1) $ (5) $-- $ (21) $ 5 $ --
========== ======== ======== ========= ========== ======== ========== =======
Basic earnings
per OP Unit..... $ --
=======
Ratio of earnings
to fixed
charges......... 1.0x
=======
See Notes to the Unaudited Pro Forma Statements of Operations.
23
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
ASSUMING 100% PARTICIPATION WITH NOTES ISSUED
A. Represents the adjustment to reduce revenues, operating expenses,
corporate expenses, interest expense, interest income and income taxes for the
spin-off of Crestline.
B. Represents the adjustment to record the historical revenues, operating
expenses, interest expense, income taxes and to reduce interest income
associated with the acquisition of the equity and debt interests for the
Blackstone Acquisition.
C. Represents the adjustment to record the historical revenues, operating
expenses, minority interest, interest expense, income taxes and to reduce
interest income associated with the 1998 acquisition of, or purchase of
controlling interests in, 11 full-service properties.
D. Represents the adjustment to record historical revenues, operating
expenses, minority interest, interest expense, income taxes and to reduce
interest income associated with the 1997 acquisition of, or purchase of
controlling interests in, 18 full-service properties.
E. Represents the adjustment to record historical revenues, operating
expenses, minority interest, interest expense, income taxes and to reduce
interest income for the 1998 sale of the New York Marriott East Side and the
Napa Valley Marriott, including the elimination of the non-recurring gains on
the sales totalling $50 million and related taxes of $20 million in 1998.
F. Represents the adjustment to reduce the interest expense, interest income
and income taxes associated with the refinancing or payoff of mortgage debt
for three full-service properties (Marriott's Orlando World Center, the
Philadelphia Marriott and the San Francisco Marriott).
G. Represents the adjustment to record interest expense and related
amortization of deferred financing fees and reduce interest income and income
taxes as a result of the Senior Note Refinancing and the Series C Senior Notes
Offering. The net adjustment of $27 million for the First Three Quarters 1998
is comprised of $85 million of interest expense related to the New Senior
Notes (including deferred financing fee amortization of $3 million) plus $20
million of net interest expense related to the New Credit Facility (including
deferred financing fee amortization of $2 million), plus $30 million of
interest expense related to the Series C Senior Notes Offering (including
deferred financing fee amortization of $7 million) less $88 million of
interest expense related to the Old Senior Notes (including deferred financing
fee amortization of $2 million) less $20 million of interest expense related
to the mortgage debt refinanced in conjunction with the Series C Senior Notes
Offering. The net adjustment of $62 million for fiscal year 1997 is comprised
of $139 million of interest expense related to the New Senior Notes (including
deferred financing fee amortization of $4 million), plus $25 million of
interest expense related to the New Credit Facility (including deferred
financing fee amortization of $2 million), plus $43 million of interest
expense related to the Series C Senior Notes Offering (including deferred
financing fee amortization of $1 million) less $116 million of interest
expense related to the Old Senior Notes (including deferred financing fee
amortization of $3 million) less $29 million of interest expense related to
the mortgage debt refinanced in conjunction with the Series C Senior Notes
Offering. The adjustment excludes the extraordinary loss of $148 million, net
of taxes, related to the Senior Note Refinancing resulting from the write-off
of deferred financing fees and the payment of bond tender and consent fees.
H. Represents the adjustment for revenues, operating expenses, minority
interest, interest expense, corporate expenses, income taxes and interest
income to deconsolidate the Non-Controlled Subsidiaries and reflect the
Operating Partnership's share of income as equity in earnings of affiliate.
I. Represents the adjustment to reduce depreciation expense of $7 million
and $11 million for First Three Quarters 1998 and fiscal year 1997 related to
certain furniture and equipment sold to the Non-Controlled Subsidiary, record
interest income of $4 million and $5 million for First Three Quarters 1998 and
fiscal year 1997 earned on the 7%, $75 million in notes from the Non-
Controlled Subsidiary and reduce the lease payment to the Operating
Partnership from the Lessee.
J. Represents the adjustment to record the historical revenues, operating
expenses, minority interest, interest expense, interest income and income
taxes associated with the Mergers, including three partnerships not
24
previously consolidated by the Operating Partnership. Interest expense
reflects interest on various mortgage notes and the estimated $258 million in
6.56% Notes issued in lieu of OP Units.
K. Represents the adjustment to record additional depreciation expense and
the decrease in minority interest expense related to the purchase of the
remaining minority interests in the Private Partnerships.
L. Represents the adjustment to reduce interest income and income taxes for
the estimated $247 million cash payment of the Special Dividend to
shareholders of Host Marriott (and the Blackstone Entities).
M. Represents the adjustment to remove hotel revenues and management fees
and other expenses of $224 million and $288 million, respectively, for First
Three Quarters 1998 and Fiscal 1997 and record rental revenues associated with
the leasing of certain hotel properties to Crestline and other lessees and
interest income of $3 million and $5 million for First Three Quarters 1998 and
fiscal year 1997 earned on the 6%, $85 million in notes from Crestline. First
Three Quarters 1998 included a $320 million reduction to rental income to
record deferred revenue for percentage rents in accordance with EITF 98-9.
Management believes the change to the lease structure described above will not
impact hotel operating results because the hotel manager and asset management
function will remain unchanged. Rental revenues under the Leases are based on
the greater of Percentage Rent or Minimum Rent. Except as noted, total Rent in
the pro forma statement of operations is calculated based on the historical
gross sales of the property and the negotiated pay rates and thresholds by
property as if the leases were entered into on the first day of fiscal year
1997. There are generally three sales categories utilized in the rent
calculation: rooms, food and beverage and other. For rooms and food and
beverage, there are three tiers of rent with two thresholds, while the other
category generally has two tiers of rent and one threshold. The percentage
rent thresholds are increased annually on the first day of each year after the
initial lease year based on a blended increase of the Consumer Price Index
("CPI") and a wage and benefit index. For purposes of the pro formas, 1997 is
the assumed initial lease year and the blended increase applied to the
thresholds at January 3, 1998 is assumed to be 3%. Minimum rent is expressed
as a fixed dollar amount that increases annually on the first day of each year
after the initial lease year as 50% of the CPI increase. Accordingly, the 1998
rent thresholds and minimum rent included in the pro formas were adjusted as
of January 3, 1998 for the 1997 increases in the indices. Rental revenue is
recognized only for leases to be executed with Crestline at or prior to the
completion of the REIT Conversion. The execution of the leases is dependent
upon distribution of the Crestline common stock to the Host's stockholders
and, to certain contingencies that are outside the control of the Operating
Partnership, including consent of shareholders, lenders, debt holders,
partners and ground lessors of Host. The Operating Partnership believes that
negotiations with third parties to complete the REIT Conversion will not
result in any material change to the leases. The table below details gross
sales, minimum rent and total rent for all full-service properties to be
leased and summarized amounts for the limited-service properties to be
subleased.
FISCAL YEAR 1997 FIRST THREE QUARTERS 1998
------------------- ------------------------------
TOTAL
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL RENT
PROPERTY SALES RENT RENT SALES RENT RENT RECOGNIZED
- -------- ----- ------- ----- ----- ------- ----- ----------
(IN MILLIONS)
Grand Hotel Resort and Golf
Club...................... $23.4 $2.8 $4.2 $18.0 $2.0 $3.7 $2.0
Scottsdale Suites.......... 11.9 3.0 5.0 8.2 2.1 3.4 2.1
The Ritz-Carlton, Phoenix.. 23.3 4.6 7.2 17.3 3.2 5.5 3.2
Coronado Island Resort..... 22.0 2.1 2.1 16.2 1.5 3.6 1.5
Costa Mesa Suites.......... 9.7 1.9 3.3 7.2 1.3 2.3 1.3
Desert Springs Resort and
Spa....................... 103.3 21.3 30.3 80.3 15.0 22.6 15.0
Manhattan Beach............ 16.3 2.4 4.8 12.2 1.7 3.6 1.7
Marina Beach .............. 21.1 4.6 7.1 16.9 3.2 6.2 3.2
Newport Beach.............. 33.5 5.5 8.7 24.0 3.9 6.8 3.9
Newport Beach Suites....... 11.0 2.6 4.1 8.0 1.8 3.0 1.8
Ontario Airport............ 12.1 1.8 3.4 8.3 1.3 2.2 1.3
San Diego Marriott Hotel
and Marina................ 103.3 38.0 39.6 78.6 26.7 31.1 26.7
San Diego Mission Valley... 16.7 3.4 5.1 12.6 2.4 5.6 2.5
San Francisco Airport...... 43.8 8.2 13.2 32.2 5.8 9.5 5.8
San Francisco Fisherman's
Wharf..................... 17.8 4.0 6.4 12.1 2.8 4.3 2.8
San Francisco Moscone
Center.................... 120.2 20.7 37.9 90.5 14.6 28.5 14.6
25
FISCAL YEAR 1997 FIRST THREE QUARTERS 1998
------------------------- ----------------------------------
TOTAL
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL RENT
PROPERTY SALES RENT RENT SALES RENT RENT RECOGNIZED
- -------- -------- ------- -------- -------- ------- ------ ----------
(IN MILLIONS)
San Ramon................. $ 19.7 $ 4.4 $ 5.1 $ 14.4 $ 3.1 $ 4.0 $ 3.1
Santa Clara............... 47.3 7.8 16.5 37.2 5.5 13.5 8.8
The Ritz-Carlton, Marina
del Rey.................. 32.4 5.5 10.8 23.4 3.9 7.9 3.9
The Ritz-Carlton, San
Francisco................ 50.1 9.6 14.7 34.2 6.7 10.3 6.7
Torrance.................. 20.5 2.3 3.5 15.0 1.6 5.1 1.6
Denver Southeast.......... 21.5 3.0 6.2 14.9 2.1 4.1 2.1
Denver Tech Center........ 26.8 5.1 8.3 20.1 3.6 6.0 3.6
Denver West............... 13.7 1.8 4.0 9.6 1.2 2.7 1.7
Marriott's Mountain Resort
at Vail.................. 17.6 3.0 5.1 14.1 2.1 4.5 2.1
Hartford/Farmington....... 18.4 3.5 4.7 13.4 2.4 3.5 2.4
Hartford/Rocky Hill....... 11.6 1.5 2.7 8.5 1.1 2.0 1.1
Fort Lauderdale Marina.... 28.5 4.3 7.9 20.4 3.0 5.7 3.2
Harbor Beach Resort(2).... 58.1 16.5 19.3 43.2 11.6 14.0 11.6
Jacksonville.............. 11.8 1.8 3.6 8.0 1.2 2.4 1.2
Miami Airport............. 29.7 3.9 8.4 21.6 2.8 6.1 2.9
Orlando World Center...... 128.2 23.5 39.6 98.7 16.5 30.4 18.3
Palm Beach Gardens........ 11.8 1.9 3.7 8.5 1.4 3.0 1.4
Singer Island (Holiday
Inn)..................... 6.6 1.4 2.5 5.2 1.0 2.1 1.0
Tampa Airport............. 17.1 1.6 3.5 13.1 1.1 2.7 1.1
Tampa Westshore........... 15.0 1.8 3.6 10.8 1.3 2.6 1.3
The Ritz-Carlton, Naples.. 66.4 18.1 23.3 53.1 12.7 18.0 12.7
Atlanta Marriott Marquis.. 85.4 21.3 33.3 58.6 15.0 25.6 15.0
Atlanta Midtown Suites.... 10.5 1.8 3.5 7.8 1.3 2.6 1.3
Atlanta Norcross.......... 7.6 1.0 1.7 5.6 0.7 1.2 0.7
Atlanta Northwest......... 14.9 2.7 4.3 11.3 1.9 3.3 1.9
Atlanta Perimeter......... 16.6 2.5 4.5 12.6 1.7 3.5 1.7
JW Marriott Hotel at
Lenox.................... 24.8 3.7 6.8 17.7 2.6 5.0 2.6
The Ritz-Carlton,
Atlanta.................. 30.2 5.8 8.8 21.7 4.1 6.8 4.1
The Ritz-Carlton,
Buckhead................. 49.3 13.1 16.3 35.8 9.2 11.7 9.2
Chicago/Deerfield Suites.. 10.2 1.8 3.1 7.4 1.3 2.3 1.3
Chicago/Downers Grove
Suites................... 9.0 1.8 2.9 6.7 1.3 2.2 1.3
Chicago/Downtown
Courtyard................ 16.3 3.1 4.9 12.2 2.2 3.9 2.2
Chicago O'Hare............ 40.0 5.5 11.5 28.8 3.9 8.2 3.9
South Bend................ 9.9 1.1 2.1 7.0 0.8 1.5 0.8
New Orleans .............. 66.4 17.5 21.8 47.6 12.3 15.8 12.3
Bethesda.................. 23.2 3.2 5.6 17.3 2.2 4.1 2.2
Gaithersburg/Washingtonian
Center................... 13.2 2.4 3.8 9.7 1.7 2.8 1.7
Boston/Newton............. 27.4 4.8 7.8 19.1 3.4 5.5 3.4
Detroit Romulus........... 8.8 1.1 1.8 6.6 0.8 1.4 0.8
The Ritz-Carlton,
Dearborn................. 25.7 3.6 5.5 17.7 2.5 4.0 2.5
Minneapolis/Bloomington... 20.2 3.3 6.5 13.8 2.3 4.7 3.1
Minneapolis City Center... 27.5 3.7 7.5 20.4 2.4 5.2 2.4
Minneapolis Southwest..... 14.9 2.7 4.8 10.1 1.9 4.0 1.9
Kansas City Airport....... 14.3 1.7 3.7 9.9 1.2 2.5 1.2
Nashua.................... 7.5 0.8 1.3 5.3 0.5 0.9 0.5
Hanover................... 22.5 4.7 6.6 15.1 3.3 4.3 3.9
Newark Airport............ 39.4 6.5 11.8 29.2 4.6 8.6 4.6
Park Ridge................ 16.0 2.5 4.0 11.9 1.7 4.2 1.7
Saddle Brook.............. 10.7 1.3 2.1 7.8 0.9 1.7 0.9
Albany.................... 18.5 3.5 6.1 12.4 2.5 5.2 2.7
New York Marriott
Financial Center......... 39.6 7.7 13.2 29.1 5.4 10.1 5.4
New York Marriott
Marquis.................. 210.3 40.0 60.8 155.4 29.7 47.6 29.7
Marriott World Trade
Center................... 65.4 12.2 19.4 49.1 8.6 14.9 8.6
Charlotte Executive Park.. 14.0 2.3 3.7 9.8 1.6 2.6 1.6
Raleigh Crabtree Valley... 14.9 2.4 3.9 10.9 1.7 2.8 1.7
Oklahoma City............. 15.6 2.0 3.8 10.4 1.4 2.4 1.4
Oklahoma City Waterford... 9.1 1.5 2.7 6.1 1.0 1.7 1.0
Portland.................. 26.4 4.1 7.5 17.6 2.9 4.8 2.9
Philadelphia (Convention
Center).................. 80.7 14.2 25.0 58.2 10.0 17.8 10.0
26
FIRST THREE QUARTERS
FISCAL YEAR 1997 1998
-------------------------- -------------------------
TOTAL
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL RENT
PROPERTY SALES RENT RENT SALES RENT RENT RECOGNIZED
- -------- -------- ------- -------- -------- ------- ------- ----------
(IN MILLIONS)
Philadelphia Airport.... $ 25.0 $ 4.1 $ 7.6 $ 18.6 $ 2.9 $ 5.6 $2.9
Pittsburgh City Center.. 16.4 1.9 3.0 11.1 1.3 2.2 1.3
Memphis................. 10.6 1.5 3.2 5.7 1.0 1.8 1.0
Dallas/Fort Worth....... 28.9 5.9 9.3 21.9 4.1 7.0 4.1
Dallas Quorum........... 25.7 4.2 8.2 18.3 3.0 5.8 3.7
El Paso................. 11.6 0.9 2.3 7.8 0.6 1.4 0.6
Houston Airport ........ 21.6 2.8 6.0 16.9 2.0 4.6 2.7
JW Marriott Houston..... 27.2 5.0 8.0 20.1 3.5 5.9 3.5
Plaza San Antonio....... 13.8 2.9 4.6 9.7 2.0 3.3 2.0
San Antonio
Rivercenter............ 68.9 17.5 24.5 49.3 12.3 17.8 12.3
San Antonio Riverwalk... 29.3 6.1 10.3 21.7 4.3 7.6 4.4
Salt Lake City.......... 28.5 5.6 9.5 21.1 3.9 7.2 4.2
Dulles Airport.......... 14.6 1.8 4.0 10.9 1.2 3.0 1.7
Key Bridge.............. 29.4 5.6 10.2 21.2 3.9 7.4 3.9
Norfolk Waterside....... 18.1 3.3 5.4 12.8 2.4 3.8 2.4
Pentagon City Residence
Inn.................... 11.7 3.5 5.5 8.7 2.5 4.2 2.5
The Ritz-Carlton, Tysons
Corner................. 34.4 5.9 9.8 24.9 4.1 7.3 4.1
Washington Dulles
Suites................. 10.3 2.5 4.0 7.8 1.8 3.0 1.8
Westfields.............. 28.0 4.7 7.4 20.3 3.3 5.4 3.3
Williamsburg............ 12.6 1.8 2.8 9.3 1.3 2.1 1.3
Washington Metro
Center................. 25.2 4.5 7.3 19.2 3.2 5.3 3.2
Calgary................. 13.4 1.7 1.7 9.8 1.2 2.3 1.2
Toronto Airport......... 17.1 2.9 5.6 13.0 2.0 4.2 2.0
Toronto Eaton Centre.... 21.1 6.1 7.1 16.0 4.3 5.6 4.3
Toronto Delta
Meadowvale............. 16.1 2.6 4.9 10.6 1.9 3.1 1.9
Fairview Park........... 22.5 3.9 7.3 16.3 2.8 5.2 2.8
Dayton.................. 18.2 3.2 6.0 13.4 2.3 4.3 2.3
Research Triangle Park.. 9.1 1.4 2.9 6.8 1.0 2.3 1.0
Detroit Marriott
Southfield............. 8.8 1.2 2.1 6.9 0.9 1.7 0.9
Detroit Marriott
Livonia................ 10.0 1.4 2.6 7.4 1.0 1.9 1.0
Fullerton............... 6.8 1.2 1.8 5.0 0.8 1.3 0.8
Marriott O'Hare Suites.. 14.4 2.7 4.9 10.8 1.9 4.0 1.9
Albuquerque............. 16.4 3.6 3.6 11.1 2.5 2.6 2.5
Greensboro-High Point... 13.6 3.3 3.3 10.2 2.3 2.4 2.3
Houston Medical Center.. 16.5 4.0 4.0 12.2 2.8 2.9 2.8
Miami Biscayne Bay...... 26.8 6.5 6.6 20.5 4.5 5.1 4.5
Marriott Mountain
Shadows Resort......... 24.1 4.4 4.5 16.9 3.1 3.1 3.1
Seattle SeaTac Airport.. 23.1 6.7 6.7 17.5 4.7 5.1 4.7
Four Seasons, Atlanta... 15.6 5.8 5.9 14.2 4.1 4.5 4.1
Four Seasons,
Philadelphia........... 41.1 7.9 12.4 30.6 5.6 10.1 5.6
Grand Hyatt, Atlanta.... 25.3 10.0 10.0 22.6 7.0 8.2 7.0
Hyatt Regency,
Burlingame............. 47.9 8.8 17.6 39.5 6.2 15.1 9.0
Hyatt Regency,
Cambridge.............. 32.4 6.7 11.9 26.8 4.7 10.4 6.1
Hyatt Regency, Reston... 30.5 6.5 11.3 24.2 4.5 9.2 4.8
Swissotel, Atlanta...... 22.2 5.0 6.3 17.2 3.5 5.8 3.5
Swissotel, Boston....... 26.8 6.4 8.5 20.5 4.5 6.9 4.5
Swissotel, Chicago...... 38.1 10.9 15.1 28.9 7.7 12.0 7.7
The Drake (Swissotel),
New York............... 38.8 11.6 13.6 34.2 8.2 13.4 8.2
The Ritz-Carlton, Amelia
Island................. 45.7 10.3 13.4 37.4 7.2 11.1 7.2
The Ritz-Carlton,
Boston................. 40.1 6.9 10.5 31.4 4.8 8.8 4.8
Non-Controlled
Subsidiary Rent........ -- (16.5) (16.5) -- (11.4) (11.4) (11.4)
-------- ------ -------- -------- ------ ------- ------
Total Full-service
Properties............. 3,600.8 699.4 1,079.1 2,671.0 493.1 826.9 507.3
Total Courtyard
Properties(3).......... 212.0 50.6 57.3 159.2 35.0 42.2 42.2
Total Residence
Inns(3)................ 69.9 17.2 19.6 50.6 12.0 13.9 13.9
-------- ------ -------- -------- ------ ------- ------
Total................. $3,882.7 $767.2 $1,156.0 $2,880.8 $540.1 883.0 $563.4
======== ====== ======== ======== ====== ======
Less: Deferred rent
under EITF 98-9........ (319.6)
-------
Total rent
recognized........... $ 563.4
=======
27
N. Represents the adjustment to eliminate interest income recorded for the
$92 million note receivable contributed to Crestline for First Three Quarters
1998.
O. Represents the adjustment to the income tax provision to reflect the REIT
Conversion.
P. Represents the adjustment to eliminate non-recurring expenses incurred in
connection with the REIT Conversion. Management expects that the total
estimated nonrecurring expenses to be incurred will be approximately $75
million.
- --------
(1) The amount of earnings and profit distribution shown reflects only the
estimated distribution to be made in connection with the REIT Conversion.
The actual amount of the distribution will be based in part upon the
estimated amount of Host's accumulated earnings and profits for tax
purposes. To the extent that the distributions made in connection with the
Initial E&P Distribution are not sufficient to eliminate Host's estimated
accumulated earnings and profits, Host REIT will make one or more
additional taxable distributions to its shareholders (in the form of cash
or securities) prior to the last day of its first full taxable year as a
REIT (currently expected to be December 31, 1999) in an amount intended to
be sufficient to eliminate such earnings and profits, and the Operating
Partnership will make corresponding distributions to all holders of OP
Units (including Host REIT) in an amount sufficient to permit Host REIT to
make such additional distributions.
(2) The Harbor Beach Resort minimum and total rent is not calculated using
historical gross sales, but instead is based on gross profit. The total
rent is greater than the amounts shown, but such difference is not
material for the periods presented.
(3) The Courtyard and Residence Inn properties will be subleased by subsidiaries
of the Company to subsidiaries of Crestline under sublease agreements. The
owners of these properties have not yet consented to the subleases but have
agreed to waive any defaults under the related leases until February 17,
1999 to provide the Company with additional time to obtain such consents
(which could require modifications in the terms of the subleases or
structural or other changes related thereto). The Company expects to obtain
such consents during this period, but if such consents are not obtained, the
Company may be required to terminate the subleases and contribute to a Non-
Controlled Subsidiary its equity interests in the subsidiaries leasing these
properties. This change would have the effect of reducing the Company's
revenues by $54 million and $75 million for the First Three Quarters 1998
and fiscal year 1997, respectively, and increasing the Company's net income
by approximately $2 million for each period. The Company does not believe
that any changes that might be required to the subleases would result in
material changes to the lease terms.
28
PRO FORMA FINANCIAL INFORMATION OF HOST REIT
Given the structure of Host Marriott's Consent Solicitation, the Mergers and
the REIT Conversion may take a variety of different forms. The variations are
dependent in part on the number and identity of the Partnerships that merge
and whether limited partners elect to tender their Partnership Interests for
OP Units, REIT shares, or Notes in connection with the REIT Conversion.
In light of the number of possible variations, Host REIT and the Company are
not able to describe all possible combinations of Hotel Partnerships that
could compose Host REIT. All Hotel Partnerships have voted to approve the
Mergers but the Mergers have not yet been completed. To assist Shareholders in
analyzing the Mergers and the REIT Conversion, Host REIT and the Company have
prepared two separate sets of unaudited pro forma financial statements of the
Operating Partnership to show the impact of the Mergers and the REIT
Conversion under various scenarios (see pro forma financial information of the
Company--pg. 1).
Additionally, Host REIT and the Company have prepared pro forma financial
statements of Host REIT in order to present the differences between the
Operating Partnership and Host REIT. See pro forma financial information of
the Company--pg. 1 for the adjustments to Host's historical financial
statements necessary to arrive at Operating Partnership--Pro Forma in the
accompanying pro forma financial statements of Host REIT.
The unaudited pro forma balance sheets and statements of operations of Host
REIT reflect the following adjustments to the pro forma financial statements
of the Operating Partnership.
. The elimination in consolidation of the convertible debt obligation to
Host Marriott of the Operating Partnership and the presentation of
Company-obligated Mandatorily Redeemable Convertible Preferred
Securities of a Subsidiary Trust Holding Company Substantially All of
Whose Assets are the Convertible Subordinated Debentures Due 2026
("Convertible Preferred Securities") on the balance sheet of Host REIT.
Interest expense paid by the Operating Partnership related to the
convertible debt obligation to Host Marriott (on a pro forma basis) is
eliminated and dividend expense for the Convertible Preferred Securities
is reflected on the pro forma statement of operations of Host REIT.
. The presentation of the Limited Partner interests of third parties in
the Operating Partnership as minority interest in Host REIT and the
reflection of Operating Partnership income allocable to the third party
Limited Partners as minority interest expense of Host REIT.
The unaudited pro forma financial statements are based upon available
information and upon certain assumptions as set forth in the notes to the
unaudited pro forma financial statements, that Host REIT believes are
reasonable under the circumstances and should be read in conjunction with the
unaudited pro forma financial statements of the Operating Partnership and the
consolidated financial statements and notes thereto for Host contained in the
Proxy Statement of Host Marriott and the Prospectus of HMC Merger Corporation.
The execution of the leases is dependent upon the successful consummation of
the REIT Conversion which is subject to contingencies that are outside the
control of Host REIT, including consent of lenders, debt holders, partners and
ground lessors of Host. Host REIT believes that negotiations with third
parties to complete the REIT Conversion will not result in any material change
to the leases.
29
HOST REIT
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 11, 1998
100% PARTICIPATION WITH NO NOTES ISSUED
(IN MILLIONS, EXCEPT PER OP UNIT AND PER SHARE AMOUNTS)
OPERATING
PARTNERSHIP PRO FORMA HOST REIT
PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ---------
ASSETS
Property and equipment, net................ $7,158 $ -- $7,158
Notes and other receivables, net........... 201 -- 201
Due from managers.......................... 14 -- 14
Investments in affiliates.................. 32 -- 32
Other assets............................... 346 -- 346
Receivable from Lessee for working capi-
tal....................................... 85 -- 85
Cash, cash equivalents and short-term mar-
ketable securities........................ 119 -- 119
------ ------- ------
Total assets............................. $7,955 $ -- $7,955
====== ======= ======
LIABILITIES AND EQUITY
Debt....................................... $4,979 $ -- $4,979
Convertible debt obligation to Host
Marriott Corporation...................... 567 (567)(A) --
Accounts payable and accrued expenses...... 60 -- 60
Deferred income taxes...................... 275 -- 275
Other liabilities.......................... 692 -- 692
------ ------- ------
Total liabilities........................ 6,573 (567) 6,006
------ ------- ------
Minority interest.......................... -- 371 (B) 371
Convertible Preferred Securities........... -- 550 (A) 550
Limited Partner interests of third parties
at redemption value (on a pro forma basis
75.1 million OP units outstanding)........ 1,001 (1,001)(C) --
Equity
General Partner (on a pro forma basis 0.2
million OP Units outstanding)........... -- -- --
Limited Partner interests of Host REIT
(on a pro forma basis 204.3 million OP
Units outstanding)...................... 381 (381)(C) --
Shareholders' Equity (on a pro forma
basis 800 million shares authorized;
204.5 million issued and outstanding)... -- 17 (A) 1,028
(371)(B)
1,001 (C)
381 (C)
------ ------- ------
$7,955 $ -- $7,955
====== ======= ======
30
HOST REIT
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FIRST THREE QUARTERS 1998
100% PARTICIPATION WITH NO NOTES ISSUED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OPERATING
PARTNERSHIP PRO FORMA HOST REIT
PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ---------
REVENUE
Rental revenues.......................... $ 563 $-- $ 563
Other revenues........................... 2 -- 2
----- ---- -----
Total revenues......................... 565 -- 565
----- ---- -----
OPERATING COSTS AND EXPENSE
Hotels................................... 412 -- 412
Other.................................... 15 -- 15
----- ---- -----
Total operating costs and expenses..... 427 -- 427
----- ---- -----
OPERATING PROFIT........................... 138 -- 138
Minority interest.......................... (14) 56 (B) 42
Corporate expenses......................... (30) -- (30)
Interest expense........................... (333) 26 (A) (307)
Dividends on Convertible Preferred Securi-
ties...................................... -- (26)(A) (26)
Interest income............................ 18 -- 18
----- ---- -----
Income (loss) before income taxes.......... (221) 56 (165)
Benefit (provision) for income taxes....... 11 (3) 8
----- ---- -----
Income (loss) before extraordinary items... $(210) $ 53 $(157)
===== ==== =====
Diluted loss per share..................... $(.77)
=====
31
HOST REIT
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FISCAL YEAR 1997
100% PARTICIPATION WITH NO NOTES ISSUED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OPERATING
PARTNERSHIP PRO FORMA HOST REIT
PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ---------
REVENUE
Rental revenues.......................... $1,156 $-- $1,156
Equity in earnings (losses) of affili-
ates.................................... (7) -- (7)
Other revenues........................... 3 -- 3
------ ---- ------
Total revenues......................... 1,152 -- 1,152
------ ---- ------
OPERATING COSTS AND EXPENSE
Hotels................................... 614 -- 614
Other.................................... 11 -- 11
------ ---- ------
Total operating costs and expenses..... 625 -- 625
------ ---- ------
OPERATING PROFIT........................... 527 -- 527
Minority interest.......................... (10) (4)(B) (14)
Corporate expenses......................... (44) -- (44)
Interest expense........................... (479) 38 (A) (441)
Dividends on Convertible Preferred Securi-
ties...................................... -- (37)(A) (37)
Interest income............................ 21 -- 21
------ ---- ------
Income (loss) before income taxes.......... 15 (3) 12
Benefit (provision) for income taxes....... (1) -- (1)
------ ---- ------
Income (loss) before extraordinary items... $ 14 $ (3) $ 11
====== ==== ======
Diluted earnings per share................. $ .04
======
32
HOST REIT
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
100% PARTICIPATION WITH NO NOTES ISSUED
A. Represents the following adjustments:
. Adjustment to remove $567 million of convertible debt obligation to Host
Marriott which eliminates in consolidation.
. Record the $550 million of convertible preferred securities held by Host
REIT.
. Record $17 million adjustment to equity for the elimination in
consolidation of the convertible debt obligation to Host Marriott.
. Remove interest of $26 million and $38 million, respectively, on $567
million of convertible debt obligation to Host Marriott.
. Record dividends of $26 million and $37 million, respectively, on the
$550 million of convertible preferred securities.
B. Represents the adjustment to present the Limited Partner interests of third
parties in the Operating Partnership as minority interest in Host REIT and
the reflection of Operating Partnership income allocable to the third party
Limited Partners as minority interest expense of Host REIT as follows:
. Record $371 million minority interest liability representing Limited
Partner interests of third parties (75.1 million OP Units out of total
OP Units of 279.6 million) pro rata share of total combined Operating
Partnership equity and Limited Partner interests of third parties at
redemption value.
. Record adjustment to shareholders' equity of $371 million to record the
Limited Partner interests of third parties as minority interest.
. Record minority expense based on the Limited Partner interests of third
parties pro rata share of Operating Partnership net income (75.1 million
OP Units out of total OP Units of 279.6 million).
C. Represents the adjustment to eliminate the Partner's Capital of the
Operating Partnership and record the Common Stock, Additional Paid-in
Capital, and Retained Earnings of Host REIT.
33
HOST REIT
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 11, 1998
100% PARTICIPATION WITH NOTES ISSUED
(IN MILLIONS, EXCEPT PER OP UNIT AND PER SHARE AMOUNTS)
OPERATING
PARTNERSHIP PRO FORMA HOST REIT
PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ---------
ASSETS
Property and equipment, net................. $7,116 $ -- $7,116
Notes and other receivables, net............ 201 -- 201
Due from managers........................... 14 -- 14
Investments in affiliates................... 32 -- 32
Other assets................................ 346 -- 346
Receivable from Lessee for working capital.. 85 -- 85
Cash, cash equivalents and short-term
marketable securities...................... 119 -- 119
------ ----- ------
Total assets............................ $7,913 $ -- $7,913
====== ===== ======
LIABILITIES AND EQUITY
Debt........................................ $5,237 -- 5,237
Convertible debt obligation to Host Marriott
Corporation................................ 567 (567)(A) --
Accounts payable and accrued expenses....... 59 -- 59
Deferred income taxes....................... 275 -- 275
Other liabilities........................... 693 -- 693
------ ----- ------
Total liabilities....................... 6,831 (567) 6,264
------ ----- ------
Convertible Preferred Securities............ -- 550 (A) 550
Minority interest........................... -- 216 (B) 216
Limited Partner interests of third parties
at redemption value (on a pro forma basis
51.1 million OP units outstanding)......... 701 (701)(C) --
Equity
General Partner (on a pro forma basis 0.2
million OP Units outstanding)............ -- -- --
Limited Partner interests of Host REIT (on
a pro forma basis 204.3 million OP Units
outstanding)............................. 381 (381)(C) --
Shareholders' Equity (on a pro forma basis
800 million shares authorized; 204.5
million issued and outstanding).......... -- 17 (A) 883
(216)(B)
701 (C)
381 (C)
------ ----- ------
$7,913 $ -- $7,913
====== ===== ======
34
HOST REIT
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FIRST THREE QUARTERS 1998
100% PARTICIPATION WITH NOTES ISSUED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OPERATING
PARTNERSHIP PRO FORMA HOST REIT
PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ---------
REVENUE
Rental revenues.......................... $ 563 $-- $ 563
Other revenues........................... 2 -- 2
----- ---- ------
Total revenues......................... 565 -- 565
----- ---- ------
OPERATING COSTS AND EXPENSE
Hotels................................... 411 -- 411
Other.................................... 15 -- 15
----- ---- ------
Total operating costs and expenses..... 426 -- 426
----- ---- ------
OPERATING PROFIT........................... 139 -- 139
Minority interest.......................... (14) 44 (B) 30
Corporate expenses......................... (30) -- (30)
Interest expense........................... (345) 26 (A) (319)
Dividends on Convertible Preferred Securi-
ties...................................... -- (26)(A) (26)
Interest income............................ 18 -- 18
----- ---- ------
Income (loss) before income taxes.......... (232) 44 (188)
Benefit (provision) for income taxes....... 12 (2) 10
----- ---- ------
Income (loss) before extraordinary items... $(220) $ 42 $ (178)
===== ==== ======
Diluted loss per share..................... $ (.87)
======
35
HOST REIT
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FISCAL YEAR 1997
100% PARTICIPATION WITH NOTES ISSUED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OPERATING
PARTNERSHIP PRO FORMA HOST REIT
PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ---------
REVENUE
Rental revenues.......................... $1,156 $ -- $1,156
Equity in earnings (losses) of affili-
ates.................................... (7) -- (7)
Other revenues........................... 3 -- 3
------ ----- ------
Total revenues......................... 1,152 -- 1,152
------ ----- ------
OPERATING COSTS AND EXPENSE
Hotels................................... 612 -- 612
Other.................................... 11 -- 11
------ ----- ------
Total operating costs and expenses..... 623 -- 623
------ ----- ------
OPERATING PROFIT........................... 529 -- 529
Minority interest.......................... (10) -- (10)
Corporate expenses......................... (44) -- (44)
Interest expense .......................... (496) 38 (A) (458)
Dividends on Convertible Preferred Securi-
ties...................................... -- (37)(A) (37)
Interest income............................ 21 -- 21
------ ----- ------
Income (loss) before income taxes.......... -- 1 1
Benefit (provision) for income taxes....... -- -- --
------ ----- ------
Income (loss) before extraordinary items... $ -- $ 1 $ 1
====== ===== ======
Diluted earnings per share................. $ --
======
36
HOST REIT
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
100% PARTICIPATION WITH NOTES ISSUED
A. Represents the following adjustments:
. Adjustment to remove $567 million of convertible debt obligations to
Host Marriott which eliminates in consolidation.
. Record the $550 million of convertible preferred securities held by Host
REIT.
. Record $17 million adjustment to equity for the elimination in
consolidation of the convertible debt obligation to Host Marriott.
. Remove Interest of $26 million and $38 million, respectively, on $567
million of convertible debt obligation to Host Marriott.
. Record dividends of $26 million and $37 million, respectively, on the
$550 million of convertible preferred securities.
B. Represents the adjustment to present the Limited Partner interests of third
parties in the Operating Partnership as minority interest in Host REIT and
the reflection of Operating Partnership income allocable to the third party
Limited Partners as minority interest expense of Host REIT as follows:
. Record $216 million minority interest liability representing Limited
Partner interests of third parties (51.1 million OP Units out of total
OP Units of 255.6 million) pro rata share of total combined Operating
Partnership equity and Limited Partner interests of third parties at
redemption value.
. Record adjustment to shareholders' equity of $216 million to record the
Limited Partner interests of third parties as minority interest.
. Record minority expense based on the Limited Partners interests of third
parties pro rata share of Operating Partnership net income (51.1 million
OP Units out of total OP Units of 255.6 million).
C. Represents the adjustment to eliminate the Partner's Capital of the
Operating Partnership and record the Common Stock, Additional Paid-in
Capital, and Retained Earnings of Host REIT.
37
PRO FORMA FINANCIAL STATEMENTS OF CRESTLINE
The REIT Conversion involves a complex series of transactions not all of
which necessarily have to occur in order for the REIT Conversion to be
consummated. The consent of a number of lenders and several outside partners
in certain key Partnerships are required in order for certain hotel properties
owned by Host to be leased to the Company, and there can be no assurance that
all such consents will be obtained. Accordingly, the number of hotel
properties that will be leased by Crestline may vary, perhaps substantially.
The unaudited pro forma condensed consolidated statements of operations of
Crestline reflect the following transactions for the First Three Quarters 1998
and for the fiscal year ended January 2, 1998, as if such transactions had
been completed at the beginning of each of the periods:
. 1997 acquisition of Forum Group, Inc. (the "Forum Acquisition") and one
additional senior living community
. 1998 retirement of $26 million of debt through a capital contribution
from Host Marriott
. 1998 repayment and forgiveness of $92 million of unsecured debt and $14.8
million intercompany note treated as a capital contribution by Host
. 1998 acquisition of one senior living community
. 1998 acquisition of minority interests in certain consolidated
subsidiaries of Crestline through contributions from Host Marriott
. 1998 spin off of Crestline by Host Marriott and the concurrent lease or
sublease of hotels from Host REIT
. 1998 adoption of EITF 97-2 to reflect the change in presentation to
present property-level sales and operating expenses
. Acquisition from Host of a 5% interest in a joint venture which holds an
approximate $130 million mortgage note from a consolidated subsidiary of
Host in connection with the REIT Conversion
. Adjustment to corporate expenses as if Crestline were operated on a
stand-alone basis, partially offset by the asset management fee to be
charged to Host REIT.
The adjustments to the unaudited pro forma balance sheet of Crestline
reflect the lease and sublease of substantially all of Host Marriott's owned
or leased hotels and certain other transactions as described herein in
conjunction with the REIT Conversion.
In 1998, Crestline acquired one senior living community for $21 million.
Also, during 1998, Host Marriott prepaid approximately $26 million of
Crestline's mortgage debt and repaid $92 million of unsecured debt to Marriott
International. The prepayment was recorded as a capital contribution to
Crestline and the $92 million was repaid in exchange for a $92 million note
due to Host Marriott with similar terms. The $92 million note and an
additional $14.8 million intercompany note were forgiven by Host and treated
as a capital contribution in the First Three Quarters 1998.
In 1997, Host Marriott Corporation acquired 29 senior living communities
from Marriott International and concurrently contributed all of the assets and
liabilities obtained in the Forum Acquisition to Crestline. In addition,
during 1997, Crestline acquired 49% of the remaining 50% interest in Leisure
Park Venture Limited Partnership which owns a 418-unit retirement community in
New Jersey for approximately $23 million, including the assumption of
approximately $15 million in debt. Crestline currently owns 99% of the
partnership.
The unaudited pro forma financial statements present the financial position
and the results of operations of Crestline as if the transactions described
above were completed. These presentations do not purport to represent what
Crestline's results of operations would actually have been if the transactions
described above had in fact occurred on such date or at the beginning of such
period or to project Crestline's results of operations for any future date or
period.
38
The unaudited pro forma financial statements are based upon certain
assumptions, as set forth in the notes to the unaudited pro forma financial
statements, that Crestline believes are reasonable under the circumstances and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto for HMC Senior Communities, Inc included in the Proxy Statement
of Host Marriott and the Prospectus of HMC Merger Corporation.
39
CRESTLINE CAPITAL CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 11, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
Property and equipment, net................. $649,528 $ -- $649,528
Amounts due from Marriott International..... 4,097 -- 4,097
Other assets................................ 14,290 85,000(A) 105,772
6,482(B)
Cash and cash equivalents................... 26,504 15,000(B) 35,022
(6,482)(B)
-------- -------- --------
Total assets.............................. $694,419 $100,000 $794,419
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Debt........................................ $213,034 $ -- $213,034
Deferred income taxes....................... 61,376 -- 61,376
Due to Host Marriott Corporation, net....... 12,989 85,000(A) 97,989
Accounts payable and other accrued
liabilities................................ 13,639 -- 13,639
Deferred revenue............................ 1,310 -- 1,310
-------- -------- --------
Total liabilities......................... 302,348 85,000 387,348
-------- -------- --------
Stockholder's equity
Common stock, 100 shares authorized, issued
and outstanding (on a pro forma basis 75
million shares of common stock authorized;
21.8 million issued and outstanding)(/1/)
........................................... -- -- --
Additional paid-in capital.................. 386,627 15,000(B) 401,627
Retained earnings........................... 5,444 -- 5,444
-------- -------- --------
Total stockholder's equity................ 392,071 15,000 407,071
-------- -------- --------
Total liabilities and stockholder's
equity................................... $694,419 $100,000 $794,419
======== ======== ========
See Notes to Unaudited Pro Forma Financial Statements.
40
CRESTLINE CAPITAL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FIRST THREE QUARTERS 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
D E F G H
DEBT
REFINANCING/ COMMUNITY CORPORATE HOTEL ADOPTION OF
HISTORICAL REPAYMENTS ACQUISITIONS EXPENSES LEASES EITF 97-2 PRO FORMA
---------- ------------ ------------ --------- --------- ----------- ----------
REVENUES
Hotels
Rooms.................. $ -- $ -- $ -- $ -- $ -- $1,785,698 $1,785,698
Food and beverage...... -- -- -- -- -- 834,913 834,913
Other.................. -- -- -- -- -- 157,640 157,640
House profit........... -- -- -- -- 1,087,328 (1,087,328) --
-------- ------- ----- ------- --------- ---------- ----------
Total hotels........... -- -- -- -- 1,087,328 1,690,923 2,778,251
-------- ------- ----- ------- --------- ---------- ----------
Senior living
communities
Routine................ 54,872 -- 84 -- -- 94,792 149,748
Ancillary.............. 2,928 -- 1 -- -- 13,483 16,412
-------- ------- ----- ------- --------- ---------- ----------
Total senior living
communities........... 57,800 -- 85 -- -- 108,275 166,160
-------- ------- ----- ------- --------- ---------- ----------
Total revenues......... 57,800 -- 85 -- 1,087,328 1,799,198 2,944,411
-------- ------- ----- ------- --------- ---------- ----------
OPERATING COSTS AND
EXPENSES
Hotels
Property-level costs
and expenses
Rooms.................. -- -- -- -- -- 725,311 725,311
Food and beverage...... -- -- -- -- -- 725,064 725,064
Other department costs
and deductions........ -- -- -- -- -- 240,548 240,548
Management fees and
other................. -- -- -- -- 195,397 -- 195,397
Lease expense.......... -- -- -- -- 861,400 -- 861,400
-------- ------- ----- ------- --------- ---------- ----------
Total hotels.......... -- -- -- -- 1,056,797 1,690,923 2,747,720
-------- ------- ----- ------- --------- ---------- ----------
Senior living
communities
Property-level costs
and expenses
Routine................ -- -- -- -- -- 94,792 94,792
Ancillary.............. -- -- -- -- -- 13,483 13,483
Other operating costs
and expenses.......... 29,803 -- 49 -- -- -- 29,852
-------- ------- ----- ------- --------- ---------- ----------
Total senior living
communities.......... 29,803 -- 49 -- -- 108,275 138,127
-------- ------- ----- ------- --------- ---------- ----------
Total operating costs
and expenses......... 29,803 -- 49 -- 1,056,797 1,799,198 2,885,847
-------- ------- ----- ------- --------- ---------- ----------
Operating profit ....... 27,997 -- 36 -- 30,531 -- 58,564
Corporate expenses...... (2,937) -- -- (9,938) -- -- (12,875)
Interest expense........ (17,560) 4,789 -- -- (3,531) -- (16,302)
Interest and dividend
income................. 1,120 -- 6 -- 392 -- 1,518
-------- ------- ----- ------- --------- ---------- ----------
Income (loss) before
income taxes........... 8,620 4,789 42 (9,938) 27,392 -- 30,905
Benefit (provision) for
income taxes........... (3,534) (1,963) (18) 4,075 (11,231) -- (12,671)
-------- ------- ----- ------- --------- ---------- ----------
Income (loss) before
extraordinary item..... $ 5,086 $ 2,826 $ 24 $(5,863) $ 16,161 $ -- $ 18,234
======== ======= ===== ======= ========= ========== ==========
Pro forma earnings per
share.................. $ .23(1) $ .84(2)
======== ==========
See Notes to Unaudited Pro Forma Financial Statements.
41
CRESTLINE CAPITAL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 2, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
C D E F G H
DEBT
FORUM REFINANCING/ COMMUNITY CORPORATE HOTEL ADOPTION OF PRO
HISTORICAL ACQUISITION REPAYMENT ACQUISITIONS EXPENSES LEASES EITF 97-2 FORMA
---------- ----------- ------------ ------------ --------- ---------- ----------- ----------
REVENUES
Hotels
Room................. $ -- $ -- $ -- $ -- $ -- $ -- $ 2,373,968 $2,373,968
Food and beverage.... -- -- -- -- -- -- 1,115,307 1,115,307
Other................ -- -- -- -- -- -- 240,329 240,329
House profit......... -- -- -- -- -- 1,425,789 (1,425,789) --
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total hotels........ -- -- -- -- -- 1,425,789 2,303,815 3,729,604
-------- ------- ------- ------- ------- ---------- ----------- ----------
Senior living
communities..........
Routine.............. 35,473 30,859 -- 7,031 -- -- 127,135 200,498
Ancillary............ 1,427 1,983 -- 188 -- -- 18,693 22,291
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total senior living
communities........ 36,900 32,842 -- 7,219 -- -- 145,828 222,789
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total revenues...... 36,900 32,842 -- 7,219 -- 1,425,789 2,449,643 3,952,393
-------- ------- ------- ------- ------- ---------- ----------- ----------
OPERATING COSTS AND EXPENSES
Hotels
Property-level costs and expenses
Rooms................ -- -- -- -- -- -- 985,891 985,891
Food and beverage.... -- -- -- -- -- -- 989,552 989,552
Other department
costs and
deductions.......... -- -- -- -- -- -- 328,372 328,372
Management fees
and other........... -- -- -- -- -- 255,389 -- 255,389
Lease expense........ -- -- -- -- -- 1,130,700 -- 1,130,700
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total hotels........ -- -- -- -- -- 1,386,089 2,303,815 3,689,904
-------- ------- ------- ------- ------- ---------- ----------- ----------
Senior living communi-
ties
Property-level costs and expenses
Routine.............. -- -- -- -- -- -- 127,135 127,135
Ancillary............ -- -- -- -- -- -- 18,693 18,693
Other operating costs
and expenses........ 20,929 17,977 -- 4,733 -- -- -- 43,639
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total senior living
communities........ 20,929 17,977 -- 4,733 -- -- 145,828 189,467
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total operating
costs and
expenses........... 20,929 17,977 -- 4,733 -- 1,386,089 2,449,643 3,879,371
-------- ------- ------- ------- ------- ---------- ----------- ----------
Operating profit ..... 15,971 14,865 -- 2,486 -- 39,700 -- 73,022
Corporate expenses.... (2,304) (5,115) -- 745 (9,826) -- -- (16,500)
Interest expense...... (13,396) (9,630) 7,312 (2,118) -- (5,100) -- (22,932)
Interest and
dividend income...... 336 598 -- -- -- 567 -- 1,501
-------- ------- ------- ------- ------- ---------- ----------- ----------
Income (loss) before
income taxes......... 607 718 7,312 1,113 (9,826) 35,167 -- 35,091
Benefit (provision)
for income taxes..... (249) (294) (2,998) (456) 4,029 (14,419) -- (14,387)
-------- ------- ------- ------- ------- ---------- ----------- ----------
Income (loss) before
extraordinary item... $ 358 $ 424 $ 4,314 $ 657 $(5,797) $ 20,748 $ -- $ 20,704
======== ======= ======= ======= ======= ========== =========== ==========
Pro forma earnings
per share............ $ .02(1) $ .95(2)
======== ==========
See Notes to Unaudited Pro Forma Financial Statements.
42
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
A. Represents the adjustment to increase working capital and record a loan
payable to Host of $85 million to record the transfer of hotel working capital
to Crestline related to the leasing of Host's hotels.
B. Represents the following transactions in connection with the
Distribution:
. Host's contribution of $15 million in incremental cash to Crestline.
. Acquisition from Host of a 5% limited partner interest in a joint
venture with Host that owns an approximate $130 million note
receivable from a consolidated subsidiary of Host.
C. Represents the adjustment to reflect the historical revenues, operating
expenses, corporate expenses, interest expense and interest income for the
Forum Acquisition as if such acquisition occurred at the beginning of 1997
(actual acquisition date was June 21, 1997).
D. Represents the adjustment to eliminate interest expense on $133 million
of debt repaid during 1998 by Host on behalf of Crestline and treated as a
capital contribution by Host.
E. Represents the adjustment to record the historical revenues, operating
expenses, corporate expenses and interest income related to the acquisition of
one senior living community in 1998 and the acquisition of one senior living
community in 1997. The adjustment also includes the elimination of $745,000 of
minority interest expense included in corporate expenses related to the
purchase of minority interests in certain consolidated subsidiaries of Crestline
in 1997.
F. Represents the adjustment to record additional corporate expenses
anticipated to be incurred when Crestline is operated on a stand-alone basis
subsequent to the Distribution, net of the asset management contract of $4.5
million per annum. The adjustment includes the following (in thousands):
FIRST THREE FISCAL YEAR
QUARTERS 1998 1997
------------- -----------
Payroll costs......................................... $ 8,102 $ 8,894
Rent and insurance.................................... 1,185 1,207
Other general and administrative costs................ 3,766 4,225
------- -------
13,053 14,326
Less: asset management fee............................ (3,115) (4,500)
------- -------
Net corporate expense adjustment.................... $ 9,938 $ 9,826
======= =======
G. Represents the adjustment to record the historical hotel revenues and
hotel expenses and pro forma lease expense associated with the leasing of
certain hotel properties from Host, interest expense on the $85 million
working capital loan at 6%, and dividend income from the 5% investment in the
joint venture with Host that owns a $130 million note receivable from a
consolidated subsidiary of Host.
Rental revenues under the leases are based on the greater of Percentage Rent
or Minimum Rent. Total rent in the pro forma statement of operations is
calculated based on the historical gross sales of the property and the
negotiated rental rates and thresholds by property as if the leases were
entered into on the first day of fiscal year 1997. There are generally three
sales categories utilized in the rent calculation: rooms, food and beverage
and other. For rooms and food and beverage, there are three tiers of rent with
two thresholds, while the other category generally has two tiers of rent and
one threshold. The percentage rent thresholds are increased annually on the
first day of each year after the initial lease year based on a blended
increase of the Consumer Price Index ("CPI") and a wage and benefit index. For
purposes of the pro formas, 1997 is the assumed initial lease year
43
and the blended increase applied to the thresholds at January 3, 1998 is assumed
to be 3%. Minimum rent is expressed as a fixed dollar amount that increases
annually on the first day of each year after the initial lease year at 50% of
the CPI increase. Accordingly, the 1998 rent thresholds and minimum rent
included in the pro formas were adjusted as of January 3, 1998 for the 1997
increases in the indices. Rental revenues are recognized only for leases to be
executed with Host REIT at or prior to completion of the Distribution. The
execution of the leases is dependent upon the consummation of the Distribution,
which is subject to contingencies that are outside the control of Host,
including consent of shareholders, lenders, debt holders, partners and ground
lessors of Host. Host believes that negotiations with third parties to complete
the Distribution will not result in any material change to the leases. The table
below details gross sales, minimum rent and total rent for all full-service
properties to be leased and summarized amounts for the limited-service
properties to be subleased:
FIRST THREE
FISCAL YEAR 1997 QUARTERS 1998
------------------- -------------------
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL
PROPERTY SALES RENT RENT SALES RENT RENT
- -------- ----- ------- ----- ----- ------- -----
(IN MILLIONS)
Grand Hotel Resort and Golf Club....... $23.4 $2.8 $4.2 $18.0 $2.0 $3.7
Scottsdale Suites...................... 11.9 3.0 5.0 8.2 2.1 3.4
The Ritz-Carlton, Phoenix.............. 23.3 4.6 7.2 17.3 3.2 5.5
Coronado Island Resort................. 22.0 2.1 2.1 16.2 1.5 3.6
Costa Mesa Suites...................... 9.7 1.9 3.3 7.2 1.3 2.3
Desert Springs Resort and Spa.......... 103.3 21.3 30.3 80.3 15.0 22.6
Manhattan Beach........................ 16.3 2.4 4.8 12.2 1.7 3.6
Marina Beach .......................... 21.1 4.6 7.1 16.9 3.2 6.2
Newport Beach.......................... 33.5 5.5 8.7 24.0 3.9 6.8
Newport Beach Suites................... 11.0 2.6 4.1 8.0 1.8 3.0
Ontario Airport........................ 12.1 1.8 3.4 8.3 1.3 2.2
San Diego Marriott Hotel and Marina.... 103.3 38.0 39.6 78.6 26.7 31.1
San Francisco Airport.................. 43.8 8.2 13.2 32.2 5.8 9.5
San Francisco Fisherman's Wharf........ 17.8 4.0 6.4 12.1 2.8 4.3
San Francisco Moscone Center........... 120.2 20.7 37.9 90.5 14.6 28.5
San Ramon.............................. 19.7 4.4 5.1 14.4 3.1 4.0
Santa Clara............................ 47.3 7.8 16.5 37.2 5.5 13.5
The Ritz-Carlton, Marina del Rey....... 32.4 5.5 10.8 23.4 3.9 7.9
The Ritz-Carlton, San Francisco........ 50.1 9.6 14.7 34.2 6.7 10.3
Torrance............................... 20.5 2.3 3.5 15.0 1.6 5.1
Denver Southeast....................... 21.5 3.0 6.2 14.9 2.1 4.1
Denver Tech Center..................... 26.8 5.1 8.3 20.1 3.6 6.0
Denver West............................ 13.7 1.8 4.0 9.6 1.2 2.7
Marriott's Mountain Resort at Vail..... 17.6 3.0 5.1 14.1 2.1 4.5
Hartford/Farmington.................... 18.4 3.5 4.7 13.4 2.4 3.5
Hartford/Rocky Hill.................... 11.6 1.5 2.7 8.5 1.1 2.0
Fort Lauderdale Marina................. 28.5 4.3 7.9 20.4 3.0 5.7
Jacksonville........................... 11.8 1.8 3.6 8.0 1.2 2.4
Miami Airport.......................... 29.7 3.9 8.4 21.6 2.8 6.1
Orlando World Center................... 128.2 23.5 39.6 98.7 16.5 30.4
Palm Beach Gardens..................... 11.8 1.9 3.7 8.5 1.4 3.0
Singer Island (Holiday Inn)............ 6.6 1.4 2.5 5.2 1.0 2.1
Tampa Airport.......................... 17.1 1.6 3.5 13.1 1.1 2.7
Tampa Westshore........................ 15.0 1.8 3.6 10.8 1.3 2.6
The Ritz-Carlton, Naples............... 66.4 18.1 23.3 53.1 12.7 18.0
Atlanta Marriott Marquis............... 85.4 21.3 33.3 58.6 15.0 25.6
Atlanta Midtown Suites................. 10.5 1.8 3.5 7.8 1.3 2.6
Atlanta Norcross....................... 7.6 1.0 1.7 5.6 0.7 1.2
Atlanta Northwest...................... 14.9 2.7 4.3 11.3 1.9 3.3
Atlanta Perimeter...................... 16.6 2.5 4.5 12.6 1.7 3.5
JW Marriott Hotel at Lenox............. 24.8 3.7 6.8 17.7 2.6 5.0
The Ritz-Carlton, Atlanta.............. 30.2 5.8 8.8 21.7 4.1 6.8
44
FIRST THREE QUARTERS
FISCAL YEAR 1997 1998
------------------------- -----------------------
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL
PROPERTY SALES RENT RENT SALES RENT RENT
- -------- -------- ------- -------- -------- ------- ------
(IN MILLIONS)
The Ritz-Carlton, Buckhead.. $ 49.3 $ 13.1 $ 16.3 $ 35.8 $ 9.2 $ 11.7
Chicago/Deerfield Suites.... 10.2 1.8 3.1 7.4 1.3 2.3
Chicago/Downers Grove
Suites..................... 9.0 1.8 2.9 6.7 1.3 2.2
Chicago/Downtown Courtyard.. 16.3 3.1 4.9 12.2 2.2 3.9
Chicago O'Hare.............. 40.0 5.5 11.5 28.8 3.9 8.2
South Bend.................. 9.9 1.1 2.1 7.0 0.8 1.5
New Orleans ................ 66.4 17.5 21.8 47.6 12.3 15.8
Bethesda.................... 23.2 3.2 5.6 17.3 2.2 4.1
Gaithersburg/Washingtonian
Center..................... 13.2 2.4 3.8 9.7 1.7 2.8
Boston/Newton............... 27.4 4.8 7.8 19.1 3.4 5.5
Detroit Romulus............. 8.8 1.1 1.8 6.6 0.8 1.4
The Ritz-Carlton, Dearborn.. 25.7 3.6 5.5 17.7 2.5 4.0
Minneapolis/Bloomington..... 20.2 3.3 6.5 13.8 2.3 4.7
Minneapolis City Center..... 27.5 3.7 7.5 20.4 2.4 5.2
Kansas City Airport......... 14.3 1.7 3.7 9.9 1.2 2.5
Nashua...................... 7.5 0.8 1.3 5.3 0.5 0.9
Hanover..................... 22.5 4.7 6.6 15.1 3.3 4.3
Newark Airport.............. 39.4 6.5 11.8 29.2 4.6 8.6
Park Ridge.................. 16.0 2.5 4.0 11.9 1.7 4.2
Saddle Brook................ 10.7 1.3 2.1 7.8 0.9 1.7
New York Marriott Financial
Center..................... 39.6 7.7 13.2 29.1 5.4 10.1
New York Marriott Marquis... 210.3 40.0 60.8 155.4 29.7 47.6
Marriott World Trade
Center..................... 65.4 12.2 19.4 49.1 8.6 14.9
Charlotte Executive Park.... 14.0 2.3 3.7 9.8 1.6 2.6
Raleigh Crabtree Valley..... 14.9 2.4 3.9 10.9 1.7 2.8
Oklahoma City............... 15.6 2.0 3.8 10.4 1.4 2.4
Oklahoma City Waterford..... 9.1 1.5 2.7 6.1 1.0 1.7
Portland.................... 26.4 4.1 7.5 17.6 2.9 4.8
Philadelphia (Convention
Center).................... 80.7 14.2 25.0 58.2 10.0 17.8
Philadelphia Airport........ 25.0 4.1 7.6 18.6 2.9 5.6
Pittsburgh City Center...... 16.4 1.9 3.0 11.1 1.3 2.2
Memphis..................... 10.6 1.5 3.2 5.7 1.0 1.8
Dallas/Fort Worth........... 28.9 5.9 9.3 21.9 4.1 7.0
Dallas Quorum............... 25.7 4.2 8.2 18.3 3.0 5.8
El Paso..................... 11.6 0.9 2.3 7.8 0.6 1.4
Houston Airport ............ 21.6 2.8 6.0 16.9 2.0 4.6
JW Marriott Houston......... 27.2 5.0 8.0 20.1 3.5 5.9
Plaza San Antonio........... 13.8 2.9 4.6 9.7 2.0 3.3
San Antonio Rivercenter..... 68.9 17.5 24.5 49.3 12.3 17.8
San Antonio Riverwalk....... 29.3 6.1 10.3 21.7 4.3 7.6
Salt Lake City.............. 28.5 5.6 9.5 21.1 3.9 7.2
Dulles Airport.............. 14.6 1.8 4.0 10.9 1.2 3.0
Key Bridge.................. 29.4 5.6 10.2 21.2 3.9 7.4
Norfolk Waterside........... 18.1 3.3 5.4 12.8 2.4 3.8
Pentagon City Residence
Inn........................ 11.7 3.5 5.5 8.7 2.5 4.2
The Ritz-Carlton, Tysons
Corner..................... 34.4 5.9 9.8 24.9 4.1 7.3
Washington Dulles Suites.... 10.3 2.5 4.0 7.8 1.8 3.0
Westfields.................. 28.0 4.7 7.4 20.3 3.3 5.4
Williamsburg................ 12.6 1.8 2.8 9.3 1.3 2.1
Washington Metro Center..... 25.2 4.5 7.3 19.2 3.2 5.3
Calgary..................... 13.4 1.7 1.7 9.8 1.2 2.3
Toronto Airport............. 17.1 2.9 5.6 13.0 2.0 4.2
Toronto Eaton Centre........ 21.1 6.1 7.1 16.0 4.3 5.6
Toronto Delta Meadowvale.... 16.1 2.6 4.9 10.6 1.9 3.1
Fairview Park............... 22.5 3.9 7.3 16.3 2.8 5.2
45
FIRST THREE QUARTERS
FISCAL YEAR 1997 1998
------------------------- -----------------------
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL
PROPERTY SALES RENT RENT SALES RENT RENT
- -------- -------- ------- -------- -------- ------- ------
(IN MILLIONS)
Dayton...................... $ 18.2 $ 3.2 $ 6.0 $ 13.4 $ 2.3 $ 4.3
Research Triangle Park...... 9.1 1.4 2.9 6.8 1.0 2.3
Detroit Marriott
Southfield................. 8.8 1.2 2.1 6.9 0.9 1.7
Detroit Marriott Livonia.... 10.0 1.4 2.6 7.4 1.0 1.9
Fullerton................... 6.8 1.2 1.8 5.0 0.8 1.3
Marriott O'Hare Suites...... 14.4 2.7 4.9 10.8 1.9 4.0
Albuquerque................. 16.4 3.6 3.6 11.1 2.5 2.6
Greensboro-High Point....... 13.6 3.3 3.3 10.2 2.3 2.4
Houston Medical Center...... 16.5 4.0 4.0 12.2 2.8 2.9
Miami Biscayne Bay.......... 26.8 6.5 6.6 20.5 4.5 5.1
Marriott Mountain Shadows
Resort..................... 24.1 4.4 4.5 16.9 3.1 3.1
Seattle SeaTac Airport...... 23.1 6.7 6.7 17.5 4.7 5.1
Four Seasons, Atlanta....... 15.6 5.8 5.9 14.2 4.1 4.5
Four Seasons, Philadelphia.. 41.1 7.9 12.4 30.6 5.6 10.1
Grand Hyatt, Atlanta........ 25.3 10.0 10.0 22.6 7.0 8.2
Hyatt Regency, Burlingame... 47.9 8.8 17.6 39.5 6.2 15.1
Hyatt Regency, Cambridge.... 32.4 6.7 11.9 26.8 4.7 10.4
Hyatt Regency, Reston....... 30.5 6.5 11.3 24.2 4.5 9.2
Swissotel, Atlanta.......... 22.2 5.0 6.3 17.2 3.5 5.8
Swissotel, Boston........... 26.8 6.4 8.5 20.5 4.5 6.9
Swissotel, Chicago.......... 38.1 10.9 15.1 28.9 7.7 12.0
The Drake (Swissotel), New
York....................... 38.8 11.6 13.6 34.2 8.2 13.4
The Ritz-Carlton, Amelia
Island..................... 45.7 10.3 13.4 37.4 7.2 11.1
The Ritz-Carlton, Boston.... 40.1 6.9 10.5 31.4 4.8 8.8
-------- ------ -------- -------- ------ ------
Total Full-service
Properties................. 3,465.1 683.6 1,053.8 2,574.3 481.8 805.3
Total Courtyard
Properties(3).............. 212.0 50.6 57.3 159.2 35.0 42.2
Total Residence Inns(3)..... 69.9 17.2 19.6 50.6 12.0 13.9
-------- ------ -------- -------- ------ ------
Total..................... $3,747.0 $751.4 $1,130.7 $2,784.1 $528.8 $861.4
======== ====== ======== ======== ====== ======
H. Represents the adjustment to reflect Crestline's anticipated adoption
of EITF 97-2 in the fourth quarter of 1998 by recording property-level sales
and operating expenses. The adjustment has no impact on operating profit or
net income.
- --------
(1) On a pro forma basis as of September 11, 1998, Crestline's had 75
million shares of common stock, $.01 par value authorized with 21.8 million
shares issued and outstanding. In addition, on a pro forma basis, 10 million
shares of preferred stock, $.01 par value are authorized with none issued or
outstanding.
(2) Reflects the pro forma earnings per share based on 21.8 million weighted
average shares outstanding subsequent to the Distribution. Pro forma weighted
average shares are based on Host's weighted average shares outstanding,
adjusted for a one-for-ten share distribution, and the issuance of 1.4 million
shares to the Blackstone Entities.
(3) The Courtyard and Residence Inn properties will be subleased by
subsidiaries of Crestline from subsidiaries of Host Marriott under sublease
agreements. The owners of these properties have not yet consented to the
subleases but have agreed to waive any defaults under the related leases until
February 17, 1999 to provide Host Marriott with additional time to obtain such
consents (which could require modifications in the terms of the subleases or
structural or other changes related thereto.) The Company expects that such
consents will be obtained during this period and has agreed to cooperate in
connection therewith, but if such consents are not obtained, the subleases could
be terminated without any payment to Crestline. This change would have the
effect of reducing Crestline's revenues by $210 million and $282 million for
the First Three Quarters 1998 and fiscal year 1997, respectively, and reducing
Crestline's net income by approximately $4 million for each periods. The
Company does not believe that any changes that might be required to the
subleases would result in material changes to the lease terms.
46
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
99.1 "Federal Income Tax Considerations" relating to an investment in 48
securities of new Host Marriott Corporation.
47